'We'll have to wait to see the rupee impact'

Q&A: S Gopalakrishnan

S Gopalakrishnan

S Gopalakrishnan, 52, who takes over as MD and CEO of Infosys Technologies in late June will be the third founder member to occupy the top slot, being part of the group which left Patni Computers over a quarter century ago to help N R Narayana Murthy set up Infosys. An alumnus of IIT Madras, Kris, as he is universally called, is soft-spoken and unassuming. He sees his high profile job as carrying the good work forward. This is no mean task as incremental growth for a $3 billion firm which has set itself an industry-leading pace is challenging in itself. Excerpts from his conversation with Aravind Gowda:

What are the absolutely top items on your agenda as you take over?

It is to make sure that Infosys continues to sustain its leadership and momentum and to give confidence to people that this (management change) is a smooth transition.

Infosys is now a $3 billion company, going on to four. How are perspectives changing with size?

When you go from a larger base, clearly, the challenges are bigger. You need to look at the people side "" how do we recruit the requisite number of people; make sure that people inside (the organisation) are co-opted to meet challenges in terms of management and leadership. On the market side, we need to look at how we can sustain this growth since the base is larger, making incremental growth larger and larger. We need to make sure we create a pipeline, create relevant services and the capability to manage larger relationships since we go after larger deals and projects.

What is the perspective on $100 million plus deals?

We are competing for them. Some of our relationships are already $100 million plus. We will be going after such deals more often in the future. We need to know how to win them and manage them. If you look at where a company of our size will be credible, then clearly there is no upper limit. But you have to look at deals which are proportionate to your current total size.

It has been four years since Infosys forayed into China. The subsidiary is still making a loss.

We have said that Infosys China is in an investment mode. This year also Infosys China will continue to be so. We have to establish Infosys China both in the domestic market as well as the international market. We are investing in building up the capacity and training the people. It is still growing and that's why it is still in the investment mode. We have got some global clients as well as local clients. Once we start building up the revenue, it will become profit-making.

Can you really say you have got the hang of the Chinese market?

Probably, not yet. Because, you will get a hang of these things when...well, it is still not that predictable. Otherwise, we would have matched the recruitment to the business to make sure that it is profitable. It is getting there, but slowly.

Infosys Consulting is still losing money. What are your plans?

On a consolidated basis, if we include in Infosys Consulting the downstream revenue that is generated as a result of its work, it is already positive and making good profit. On a standalone basis, it is still losing money. This year, that will come down substantially and over the next two years, it will be positive on a standalone basis too.

Do you see a challenge on future margins for Infosys? Please dwell on rupee appreciation and MAT.

We have clearly stated that this year we are sustaining the margins except for the dilution on the share count side. Because options were exercised last year, the share count has increased. The number of shares outstanding has also gone up. Otherwise, we are sustaining margins.

We have assumed a certain exchange rate for the rupee""Rs 43.10 per dollar. We have to see at the end of the quarter as to what happens. We won't give any guidance in between. On MAT, the impact will not be significant as it is stated now.

What are your plans for the Finacle core banking solution to break into mature markets?

It is already serving mature markets like Australia, New Zealand, Singapore and some European markets. It is slowly migrating to mature markets. We have significant wins in these markets. So, it is doing well. Now, we need to look at more countries as we go along. Several analysts have rated Finacle as the number one core banking solution in the world today.

When it comes to BPO, Genpact outshines everyone else. What do you plan to bridge the gap with Genpact?

They have an advantage of size, but from a brand perspective, Infosys BPO is also doing very well. We have got good visibility, good performance and it is growing rapidly. It has one of the highest margins in the BPO industry (about 22-23 per cent net margins). It is doing very well. At some point, size will also become substantial. In fact, it will continue to grow.

What will happen to Infosys's huge cash reserves?

We have always stated that this cash is for strategic reasons. We want to make sure that the business is insulated from any significant downturn. We will be able to restructure and reengineer the company without losing any employee. We have a certain formula to compute how much money we require. We also have certain benchmarks which we use internally in terms of return on invested capital. And if it goes below that, we return it to the shareholders as dividend. We have done so on two occasions in the recent past""once as part of the 25th year and once as part of the billion dollars revenue achievement. We will look at returning it to the shareholders if required.

There are nationwide protests against land acquisition for large projects. Infosys talks only in terms of campuses. Can land become a bottleneck?

It is more of a political issue than anything else. Logically, the amount of land taken up by these projects is minuscule. I believe it has to be handled at the political level. Whether it will hurt the industry? Probably it will not because there are other states that are still willing to offer land. There are existing industrial parks where the land is available. Of course, there are opportunities to build private campuses. If required, the industry will figure out what is the best way.

Do you have a preference between STPI and SEZ?

From a long-term perspective, an SEZ is beneficial as a tax break is offered for the next 15 years whereas the STPI Act comes to an end in 2009.

Karnataka politicians don't seem to like Infosys or its leaders. What is the solution?

I do not think it's true in reality. We have had a good relationship. We will continue to have a good relationship. We have worked very well with governments in the past, supported many initiatives and will continue the support. There is nothing from our side other than respect and willingness to work together.

Of late, there have been some large deals in India where Indian IT leaders are not present. Are these global players stealing a march on us on our home ground?

It is difficult to make a broad statement like that. If you look at the banking sector, Finacle really dominates the large banks... 70 per cent of the large banks use Finacle today. It is a certain win.