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Infosys: Can Infosys become IT bellwether again? Salil Parekh answers

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By Chandra Srikanth


We had started the acceleration process in the last financial year. We are continuing with our digital acquisitions to remain relevant to what our clients are looking for, says the Infosys CEO.

How has things improved since the lockdown has been lifted?
Since the end of March we have seen steady improvement in how we are engaging with clients and also in some of the areas of demand. For example, we know that sectors like high tech, telecommunications, life sciences and even financial services were in fairly good condition as we went through the first quarter. We are now seeing sectors which were more impacted like retail and manufacturing slowly coming back. They are not at the same levels as they were before but they are definitely improving steadily month on month.

This has been five quarters of outperformance for you. Can we expect a sixth quarter of outperformance of the revenue numbers — a double hat-trick?
We will find out soon enough. Our focus has always been on what our clients are looking for, how do we make sure that their expectations are met and that is the main objective we have. Everything else sort of happens along the way. We are meeting our clients objectives and ensuring that our employees are getting a safe environment and good career prospects.

I know you are in your silent period, but can you give us some forward looking statements — a few headlines on what to expect next month?
We will very soon be entering the end of the quarter and you will start to see that. We have seen steady improvements in some of the sectors like retail and manufacturing. We have seen a lot of efficiency overall in the business in the way that we managed the cost structures and we see that the demand is strong on the digital side and on the automation side.

Is it safe to assume that Infosys is now in the acceleration phase, that its transformation is now complete and the company is back to becoming the bellwether of the IT sector?
In the last financial year that ended in March, we had a growth of 9.8%. In the year before that, we had a growth of 9%. We had started to move with that sort of an acceleration already in the last financial year. With the worldwide situation in terms of the economy and the medical crisis, we feel that we have done an extremely good job of staying even more relevant to what our clients need and in many ways, the first phase of that transformation is behind us. However, this is an ongoing journey.

Every day, we have to ensure that we remain relevant to what our clients are looking for. Towards that end, we continue with our digital acquisitions. A few weeks ago we launched a new effort on cloud. It is Infosys Cobalt where all our cloud capabilities are built together for accelerating our clients’ cloud journey and for reducing the risks. Within Cobalt, we have got 200 industry solutions and 14,000 cloud assets. That is another part of our transformation journey. We have also announced several acquisitions. These are different pieces of our digital journey that we continue to invest in. But we are very comfortable in that. We are more and more relevant for our clients but it is not a journey that stops, it is an ongoing activity for us.

In terms of a large deal pipeline, you announced Vanguard in July, which is the biggest deal in Infy’s history. Now some analysts are pegging this at $1.5 billion. Are there more deals like this in the pipeline?
We are delighted with the digital transformation partnership with Vanguard. We think that there will be more and more such partnerships with different large enterprises in the US and Europe. There are different sectors that are going through a change. There’s more change in financial services on the banking side. There are other change elements that are going on in life sciences and pharmaceuticals. There are some change elements that are going on in the telecommunication sector.

My view is that through different industries, some of these large transformation partnerships will emerge. We feel we have a good pipeline. The thing to watch out for is at what pace they come. Typically large partnerships are lumpy and are not steady but we have a good pipeline and I feel comfortable we will see more of these in the future.

Analysts say that while pricing and volumes are coming under pressure in core services, it is not the case at all on the transformation side and that clients are not pressing the panic button. Is that something that you are seeing as well?
Overall the pricing seems to be quite stable at this stage. There have been one or two or a handful of discussions on pricing. It is not something, which given the type of economic crisis stemming from the medical situation, one could have expected. So in that sense it is better than what was expected.

Chandra Srikanth: There’s concern over your operating margins. From FY17 to FY20, your operating margins in dollar terms grew by 2.3% annually. Is growth coming at the cost of margins? When do you see some of these investments pay off on the margin front?

Salil Parekh: In the first quarter, we had a very robust margin at 22.7%. We have given a guidance of margin between 21% and 23%. It is the same range of margin guidance we had given for the last financial year and as we go through this year we are being careful about how we are looking at the cost in the changed global macro environment and we will be even more robust with our margins.

I feel comfortable in the sense that the investments we made in the first couple of years when I started are behind us. We are now working with this margin guidance band which is 21-23% and all of the activities we are doing for building capabilities, re-skilling come from this operating margin band. We are not making any extra investments.

“Going ahead, there will be recruitment in different geographies in addition to the large recruitment in India.”

— Salil Parekh

When are you announcing promotions and salary hikes? What percentage of employees will be eligible and at what levels?
We had an extremely high variable number because of really hard work and dedication of all the employees. We will continue with that approach in terms of looking at what are the things that make sense. We have already internally started to take decisions for different levels of employees within the company of promotions and of changes of salary. All of that will be looked at through this year as the economic environment around us both worldwide and in India starts to see improvement. We will make sure it is done in conjunction with that so that all the employees’ hard work and efforts are also rewarded.

You have announced that you are going to ramp up your US workforce to 25,000 by 2022. Is this an effort to make Infosys a visa independent company irrespective of who comes to power in the US? Secondly, what will be the cost implications?
We we had announced a few years ago about plans to recruit of 10,000 employees in the US. We actually overshot that and we were at 13,000. Given that it was working well and we had more and more work within the USm for the future we decided to expand on that announcement and announced another 12,000 additions.

Having said that, we are still massively recruiting in other parts of the world as also within India. Going ahead, there will be recruitment in different geographies in addition to the large recruitment in India. In terms of the cost, we have built a business model and an economic model which creates a full pyramid recruitment from college level all the way up to senior levels in many other geographies outside of India. We think that is the model that will work efficiently for us for the work we are doing with clients that are focussed on digital transformation and automation. It is going to help us sustain our margin quite efficiently.

How helpful has it been for you having Nandan Nilekani as chairman? He is not just the co-founder, he is also a globally respected and known technocrat? Is he closely involved in strategy or key clients?
I think it is incredible to have Nandan with the company. He is an incredible visionary and he spends a lot of time as much as is needed. Whenever I need some guidance and help, I reach out to him. He also has a deep knowledge of what is going on in the technology world and how some of these digital transformation journeys are working. His involvement is very good, very positive. He also has a clear view on the strategic direction that we should take as a company. It is fantastic to work with him. To be clear, it is also really brilliant to work with all of our board members.

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