Infy founders have little to complain about Sikka's performance

Infosys' founders may not have been enthusiastic while voting for a resolution reappointing Vishal Sikka as managing director and chief executive officer, but an analysis of numbers shows they hardly have any reason to complain about his performance.

The company's stock is nearly 50 per cent higher than in June 2014, when Sikka took over, and the momentum favours it over peers. Infosys is once again a Dalal Street favourite.

"There have been more positives than negatives in Sikka's tenure. He is delivering on his agenda of faster growth and transforming the company to take advantage of changes in technology," says Ashish Chopra, information technology analyst at Motilal Oswal Securities.

Infosys beat peers TCS, Wipro and HCL Technologies in the last two quarters in revenue growth and has the most bullish forward guidance.

The company's founders may also find it difficult to pick holes in Sikka's capital allocation strategy. Breaking the mould, Sikka has stepped up dividend payout and has begun to use the company's massive cash pile for acquisitions.

In 2014-15, Infosys distributed Rs 5,111 crore as dividend, up from Rs 2,412 crore in 2012-13. In 2014-15, 41 per cent of the consolidated net profit was distributed as dividend, up from 26 per cent in 2012-13. This means more cash in the hands of Infosys' five founders, who collectively own 13.1 per cent in the company.

At the end of March 2015, Infosys was sitting on Rs 32,500 crore of cash, up 10.5 per cent over the previous year on a consolidated basis. To Sikka's credit, the proportion of free cash in Infosys' balance sheet is on a downward trajectory, due to higher dividend payouts and a slew of acquisitions and investments. Cash now accounts for 64 per cent of Infosys' net worth, down from 66 per cent in 2011-12. The ratio is still among the highest in the sector, exerting pressure on Infosys' return ratios, beside providing ammunition to critics who want the company to return more cash to shareholders.

In February 2015, Sikka announced the acquisition of Pananya for $200 million, followed by Skava for $120 million. In October, Infosys acquired energy-focussed firm Noah for $70 million. In all, Infosys made acquisitions and strategic investments worth Rs 2,200 crore in 2014-15, the highest in its history.

Sikka has stated that acquisitions will bring in $1.5 billion in revenue as Infosys aspires to become a $20-billion company by 2020.

"The current arrangement of Sikka as the face of the company and (Pravin) Rao as chief operating officer is working well for Infosys," says Sudin Apte, chief executive officer and research director, Offshore Insights.

He sees some disconnect in Sikka's focus on artificial intelligence and automation. "But what he has done internally, like realigning service lines or lowering bench strength, are steps in the right direction," Apte says.

"Sikka's tenure could be a long one if he keeps large non-promoter shareholders happy. Some of the founders may not approve this given their emotional attachment with the company," says an analyst on condition of anonymity.