Bengaluru: Nearly nine months after the departure of former chief executive officer (CEO) Vishal Sikka, India’s second largest software exporter Infosys Ltd has eviscerated the last remaining pieces of the former SAP executive’s legacy at the company and decided to start on a clean slate—the clearest sign yet of the company’s road map under the stewardship of non-executive chairman Nandan Nilekani and new CEO Salil Parekh.
On Friday, Infosys effectively conceded that the large acquisitions that it undertook under Sikka had failed to bear fruit, with the company deciding to jettison two companies—Skava and the controversial Panaya—through a proposed sale, which many analysts interpreted as a fire sale of sorts.
Infosys bought the companies on Sikka’s watch. It spent $320 million on the two. Now, less than two years later, it has decided to sell them. More tellingly, Infosys has written down $90 million—nearly half the amount it spent buying Panaya.
“As part of our strategic review, we put together a set of criteria for our entire portfolio. When we looked at Skava and Panaya, they did not meet that criteria. We then decided to take the actions that we’ve taken,” said Parekh.
“Both Skava and Panaya put together, the revenues from them are not material for us,” said chief financial officer M.D. Ranganath during a post-earnings address.
The latest moves also mark a culmination of an earlier statement from Nilekani, shortly after he returned as chairman last year, when he indicated that Infosys would return to the basics of good execution and use the US more as a “listening post” for the future, rather than as the centre of all its operations.
“We see the Palo Alto office as a listening post to the latest developments in tech happening in Silicon Valley, in machine learning, AI, deep learning, virtual reality, automated reality, self-driving cars,” Nilekani had said.
Again, since Sikka’s departure in August, almost all the former SAP executives who joined Infosys have left Infosys.
Infosys also undertook a reshuffle of sorts of its board, with the company deciding to name Kiran Mazumdar-Shaw as its lead independent director, which, according to one executive, suggests that Infosys is looking at Shaw to lead the board whenever Nilekani decides to leave the company.
Infosys also dissolved the three-member finance and investment committee at the board, which was made to oversee the investments and acquisitions by the firm during Sikka’s stint.
Despite the concession that its most recent acquisitions have failed to work out, a calm and confident Parekh indicated that he is not playing conservative, as Infosys surprised the market by announcing that it had agreed to buy WongDoody Holding Co. Inc., a US-based digital creative and consumer insights agency, for $75 million.
In more ways than one, Parekh and Nilekani have also reversed some of the earlier management’s decisions. Three years back, Sikka outlined his aspirational target to make Infosys a $20 billion company with 30% profitability by 2021. Infosys has now lowered its operating margin band for 2018-19 to 22-24%.
A positive fallout from this development is that Infosys can chase more business and grow revenue as commoditized outsourcing deals see intense pricing pressure, and at the same time, it has more money to give to its employees.
For this reason, many analysts and observers said that, effectively, Infosys addressed all three constituencies of employees, shareholders and promoters.
Infosys is also set to return $2 billion to shareholders in dividends and share buyback in 2018-19.
Some of the concerns of Infosys founders, led by N.R.Narayana Murthy, have also been effectively addressed, with Infosys’s decision to sell both Panaya and Skava.
“Almost three years after acquiring Skava, Infosys’s share of the retail and CPG (consumer, packaged goods) vertical remains relatively flat, around 14% of total revenue. This trend highlights Infosys’s struggle to improve vertical performance by developing and customizing industry-specific platform IP (intellectual property),” Bozhidar Hristov, an analyst at US-based research firm TBRI, said in a statement.
Of all its acquisitions, Infosys’s decision to buy Panaya was the most controversial, with a few employees and some founders, including N.R. Narayana Murthy, questioning the rationale behind buying the Israeli firm.
Infosys’s then chief financial officer, Rajiv Bansal, expressed his reservations and even walked out of a board meeting when board members were asked to approve a proposal to buy Panaya in February 2015. Later, Infosys’s decision to make an unexplained and generous severance payment to Bansal led to a few shareholders, including Murthy, repeatedly raising the issue. Sikka, then CEO, strongly denied all allegations of skulduggery and corporate greed but eventually called these charges “sickening” and resigned on 18 August.