Infosys profits decline, looks to sell Panaya

Profit in the quarter ended March fell nearly 28 per cent over the previous three months to Rs 3,690 crore, according to its stock exchange notification. The profit is slightly lower than Rs 3,702 crore analysts tracked by Bloomberg were expecting.

The decline in profit was mainly because Infosys had got an income tax reversal of Rs 1,432 crore from an advance pricing agreement signed with the US tax authorities in the quarter ended December.

•Revenue rose 1.6 per cent sequentially to Rs 18,083 crore

•Revenue in dollar terms rose 1.8 per cent to $2,805 million

•Operating margin expanded 40 basis points over the last quarter to 24.7 per cent

•Expects margin to remain between 22-24 per cent in 2018-19.

“I am pleased with our healthy revenue growth, profitability, and cash generation in Q4. Our robust performance is a reflection of the strong impact we have with our clients and the dedication of our employees. ‘Navigating Your Next’ is our aspiration of how we will partner with each one of our clients.” said Salil Parekh, CEO, Infosys said in a note.

The results are a sign that business for the IT sector is now stablising, according to Trip Chowdhry of Global Equities Research. While it would take more time to achieve “secular growth”, for now the results are good, Chowdhry told BloombergQuint.

Infosys is looking to shift focus back to business after being hit by a boardroom coup and a leadership change last year. It’s bet for revival is its digital offerings that already contribute slightly over a quarter of the revenue. Its four-pronged strategy includes scaling up digital services, reskilling employees to match the new needs of the industry like AI and deep machine learning, hiring more local workers in offshore centres in the US and Europe while also holding its fort in their core business.

QUOTE: 

Our strategy is built on where our clients digital journey is taking them, and for us to have relevance for the future with our client. Salil Parekh, CEO, Infosys 

Digital services such as cloud transformation, that attempt to align and modernise IT infrastructure and standardise application processes, are becoming more and more an important component of the large deals that Infosys is getting. “Overall, the size of digital deals is definitely increasing,” said COO Pravin Rao. “The deals are also becoming more complex because now digital is moving beyond user experience and the front-end to modernising the back-end, analytics and the integration between the front-end and back-end.”

The push for digital is also why Infosys cut its operating margin forecast in the 2018-19. “For this year the primary reason is that we want to invest in digital, where we were underinvested,” said CFO Ranganathan.

•Identified up to $2 billion (Rs 13,000 crore) to be paid to shareholders this year. This includes a Rs 10 per share special dividend to be paid out in June.

•Recommended a final dividend of Rs 20.5 per share for FY18.

•Appointed Kiran Mazumdar-Shaw as the lead independent director.

•To acquire WongDoody Holding Co, a US-based digital creative and consumer insights agency, for up to $75 million.

•Attrition rate at 19.5 pc versus 18.7 pc sequential

Infosys Ltd is also looking for buyers for its subsidiaries including Israeli Panaya that was at the heart of the boardroom coup resulting in exits of former CEO Vishal Sikka and former Chairman R Seshasayee.

The company has decided to look for potential buyers for subsidiaries Kallidus and Skava (together called ‘Skava’) and Panaya, it said in its filing. The transactions are expected to be completed by March next year.

Infosys had acquired Skava and Panaya for $120 million and $200 million respectively in 2015. These assets amounting to Rs 2,060 crore (or $316 million) and liabilities of Rs 324 crore ($50 million) are now held for sale. The company has recognised an impairment loss of Rs 118 crore in respect of Panaya for the quarter.

The corresponding write-down in the investment value of the subsidiary in the standalone financial statements of Infosys is Rs 589 crore, the filing said.

Among the governance issues raised by Infosys co-Founder NR Narayana Murthy was the severance package for former CFO Rajiv Bansal. Murthy, according to a media report, had said there was a need to probe if there was “hush money” related to the acquisition of Panaya. He had cited allegations by an anonymous whistle-blower.

Based on Murthy’s demand, the board appointed agencies to investigate the acquisition and the circumstances surrounding it. But despite Murthy’s insistence, the board refused to make the reports public saying the investigations had found no wrongdoing.

The bickering between Murthy and the board eventually led to the return of his fellow co-founder Nandan Nilekani as Chairman, and Sikka, Seshasayee and two other directors quit. Infosys eventually named Salil Parekh as its CEO.