Vishal Sikka's three years at Infosys: Numbers endorse outgoing CEO and MD

Under him, IT giant regained some of its mojo that it had lost under his predecessors

If numbers could speak, they would endorse Vishal Sikka at Infosys. He took an iconic company but an industry laggard and turned it into a market performer, if not an industry bellwether as Infosys was during its heydays prior to the 2008 global financial crisis. In his three-year tenure, Infosys’ quarterly revenues (in dollar terms) grew at a compounded annual rate (CAGR) of 7.4 per cent, keeping pace with industry leader TCS, for the first time after founder-promoter Nandan Nilekani stepped down in 2007. 

In comparison, Infosys’ revenue growth has lagged behind TCS under other founder-promoters, S Gopalakrishnan and S D Shibulal, who were in the driving seat after Nilekani (see chart).

Under Shibulal, Infosys' revenue growth in constant currency terms and profit growth were in fact nearly half that of TCS. And, it was the second-worst performer among country's top IT companies (Wipro lagged Infosys). 

"Last three years have been tough for the industry, with slowdown in revenue growth and pricing pressure. However, Infosys has been able to keep pace with the industry and its peer group after being a laggard for a significant period of time. Sikka deserves a credit for this," says Amit Tandon of corporate governance and proxy advisory firm, IiAS.

Sikka's biggest impact was on the company's earnings trajectory. While most IT companies witnessed a steady erosion in their profits in the past three years due to a growing mismatch between revenue growth and overheads, including employee, the impact on Infosys' margins were minimal.

In the past three years, Infosys' net profit grew at CAGR of 3.8 per cent, against earnings contraction in case of TCS and Wipro. Infosys has been the best performer among domestically-listed IT companies and only beaten by Cognizant, which topped the earnings growth, with a CAGR growth of 8.1 per cent. 

Likewise, in the past three years, Infosys' net profit margin declined 220 basis points (bps), from 22.6 per cent of net sales when Sikka took over to 20.4 per cent in the quarter ended June. During the same period, TCS' net profit margin declined 510 bps to 20.1 per cent, while Wipro's was down around 340 bps to 15.3 per cent. Cognizant was the top performer with the least decline of 200 bps in its net profit margin to 12.8 per cent during the period. Not surprisingly, Infosys regained some of its (stock market) mojo that it lost during Sikka's predecessors. 

Infosys has been the top performing tier-I IT stock on the bourses in the past three years. The stock price grew at a CAGR of 6.7 per cent, against 1.6 per cent annualised appreciation in the NSE IT index. 

The company's performance was in line with the broader market, with the Sensex up 7.1 per cent during the period. Sikka’s exit has muddled the picture and many analysts now fear the company may once again become a laggard if the uncertainty about the top leadership is not resolved soon.