In the face of Infosys’ disappointing results in the fourth quarter of 2014-15 and amidst concerns over the if-wishes-were-horses kind of projection of becoming a $20 billion company by 2020, Vishal Sikka probably tried to please all on Friday.
Unfortunately, he ended up pleasing hardly anybody – Infosys’ investors would hardly be thrilled with the 1:1 bonus and shareholders may consider the 50% dividend payout ratio as a small consolation even though it has increased from 30% a couple of years ago.
Fund manager Sandip Sabharwal would surely get a lot of response to his Friday tweet -- "Companies announce bonus on good results and outlook; Infosys strategy creating stock positivity by bonus on poor results difficult to understand." The Infosys stock understandably tanked following the results, as the company reported a sequential drop in revenue (in constant currency). Its peers did much better.
On the other hand, shareholders would be worried about Infosys’ capital allocation, considering the cash pile of Rs 32,985 crore – a point raised in October last year by three former Infoscions who wanted the company to dip into its cash chest to buy back shares. A share buyback would reduce the floating equity, thereby increasing the earnings per share, they had argued.
Infosys was perhaps right in not paying heed to their demands at that time for three reasons – one, the three shareholders, two of whom were former chief financial officers, were quite content with hoarding cash during their stint in the company and hence, it sounded like doublespeak; two, the demand came at a time when Infosys was in the middle of the biggest leadership transition in its history; and three, there was a renewed hope that the new management, led by Sikka, would be proactive in going for aggressive acquisitions.
Nothing of that sort has happened. True, in the last eight months, Infosys has made two acquisitions – that of Panaya and Kallidus – but the total value of these acquisitions is less than Rs 2,000 crore. This doesn’t even match the incremental cash flow the company has got in just one financial year. According to Infosys, its liquid assets stood at Rs 32,585 crore on March 31, 2015 as compared to Rs 30,251 crore on March 31, 2014.
It’s nobody’s case to suggest that Infosys should go for reckless acquisitions and burn cash. It’s also fairly certain that the two acquisitions and sundry investments in a couple of start-ups would surely give Infosys capabilities that it otherwise would have had to spend a lot of time building.
But the ultra-cautious stand does no good to anybody. More importantly, this will hardly placate shareholders who want a clear strategy on capital allocation. This is a relevant concern as Infosys is perhaps the most overcapitalised company in India.
Since its listing in 2004, the cash chest of Infosys has been steadily growing while the company has been fighting shy of making big acquisitions that could have put the cash to use in core operations. It’s time for Sikka, the 48-year-old PhD in computer science from Stanford University, to go off the beaten track.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
