Why Infosys should stay the course: Challenging present, promising future

It has been a disappointing fourth quarter and financial year (FY15) for Infosys . A dollar revenue growth of a mere 5.6 per cent for the full year has meant that Infosys has been the worst performer among large Tier-1 Indian IT companies.

While it is early days yet under the new management team lead by CEO and MD Vishal Sikka, markets are getting impatient for results. The hammering the company's shares took after numbers were declared, wiped out more than Rs 12,000 crore in market capitalisation.

Sikka and his top team should, however, stay the course. He is right when he says that there is a fundamental shift happening in the IT services business. Chasing commodity business by sacrificing margins might add to topline in the short term but is not the way to build a company for the long run.

The emphasis on reskilling employees, inculcating design thinking, enhancing automation to improve productivity, investing in Artificial Intelligence, SMAC stack and making acquisitions to aid inorganic growth is the way to go.

However, Infosys is a large ship and righting it is not an easy task.

At least Sikka has articulated his goals clearly and publicly: $20 billion in revenue by 2020 with 20 per cent margins and per employee revenue of $80,000. In the short term, he has said he wants to regain industry-leading profitable growth by FY17. If he achieves it, he would have done a remarkable turnaround for the company.

Infosys announced its second acquisition in the recent past, a $120-million acquisition of Kallidus in the digital experience space, following up on its acquisition of Panaya for its cloud play. It has also announced setting apart half of its $500-million innovation fund for the India market. This is one area where Sikka needs to accelerate and stop being ultra timid. The company is sitting on $5.2 billion of cash. It needs to take a few more risks to accelerate growth.

In spite of announcements of setting apart a $500 million innovation investment fund with half of it earmarked for India, Infosys has not been aggressive on this front.

Sikka said he had already met 170 leaders of its clients. Investing in right technologies, improving employee morale and ensuring flawless execution should be the areas Sikka should focus on. Just stay the course.