Why Sikka's Vision for Infosys a far-fetched dream?

Last Updated 13 October 2019, 16:03 IST

India’s second largest IT services firm Infosys is unlikely to realise the target of achieving $20 billion in revenues by 2020. The target was set by its former CEO Vishal Sikka.

Sikka, who made an unceremonious exit from the company in August 2017 after a prolonged tussle with the company’s founder-promoter group led by N R Narayana Murthy, had set a target of 80,000 revenue per employee and a margin of 30% by 2020.

At one point in time, when Sikka was spearheading India’s most high-profile company, Vision 2020 was one of the most talked-about topics among the people who had a bit of interest in IT services -- analysts and business scribes included.

With just one quarter away from 2020, the company by no means can achieve this target by the end of the current financial year. The company’s revenues in the first six months of the year stand at $6.34 billion – with already the strongest quarter of the year (September quarter) gone by. In the face of the weak fourth quarter, even if the company manages to more than double its revenues for the year, the number would hover around $13 billion, almost 35% short of the target.

The revenue per employee also seems to have stagnated at $54,000 per employee. While this is 0.6% higher on a sequential basis, it is 0.5% lower on an annual basis. On this front as well, the company is short of the target by about 33%.

When Sikka took over as the CEO, the margin stood at 25.5% in the immediately preceding quarter. However, right now it has declined to 21.7% -- the lower end of its guidance. Once a bellwether in terms of margin, the company attributes this decline to the increase in the investments.

Even when Salil Parekh took the reigns of the company in 2018, he set out a new vision for India’s most high-profile company. Infosys, however, had never said that it has junked Sikka’s Vision 2020.

All this brings us to a crucial question. Was Sikka’s Vision 2020 far-fetched? Well, DH asked this question to the company’s present CEO, Parekh. In a bid to avoid any kind of controversy, Parekh declined to comment on the issue.

But the analysts that DH spoke to said that the goal was achievable, but attributed the phenomenon to the principal-agent problem. The principal-agent problem, in political science and economics (also known as agency dilemma or the agency problem) occurs when one person or entity (the agent), is able to make decisions or take actions on behalf of, or that impact, another person or entity: the principal. “The company was sitting on a pile of money. Vishal wanted to invest it and grow. While the promoters didn’t want it to happen,” an analyst tracking the company said.

In fact, at the time, when the battle lines between the founders and the then management got sour in 2017, the trade-off between shareholder wealth creation and the going for mergers and acquisitions was widely debated.

Infosys is a debt-free company known for its huge cash balances. As of date, the company’s cash reserves stand at Rs 16,473 crore, despite a 15.8% dip on a sequential basis.

(Published 13 October 2019, 13:58 IST)

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