With the change in the demand environment due to economic slowdown, Infosys is seeing growth benefits in consolidation deals, Infosys CEO Salil Parekh said at the company’s Annual General Meeting. The IT behemoth is seeing its clients’ attention moving from digital and cloud transformation to cost efficiency and automation.
Underscoring the two recent deal wins, BP and Danske Bank, Parekh said, “These are the sorts of opportunities we see coming about and therefore we see our focus into those areas will continue to give us benefits.” . Infosys recently won a $454-million deal for the digital transformation of Denmark’s Danske Bank, and a month ago won the BP deal which was reportedly sized at $1.5 billion.
Addressing the impact on margins, CFO Nilanjan Roy said the company will continue to look at multiple levers. “In FY 23, we had margin impacts from salary increases, travel costs came back, utilisation dipped, and we also had the initial impact of previously stuck large deals. We are working on the margin side, continuing to look at levers like automation, pyramid optimisation, and on-site offshore mix,” Roy noted.
Infosys is seeing the impact of macroeconomic conditions in industry verticals such as financial services, mortgage, asset management, investment banking, the telecom sector, high tech, and some areas of retail. Parekh said the company will stay watchful of how it evolves over the next quarters.
Eyeing buys
The IT major is also considering acquisitions of all sizes and will make one if a potential company fits the right criteria, Parekh noted. “Our approach has been to look at things that fit in strategically within a digital or cloud or AI framework. We then look at what will be the way to integrate it, the culture of the company, the method of running it, and the price value, based on which we make the decision,” he said.
However, the company is also mindful as over the last two years, acquisitions that were initially of high value, have seen their value reduce.
Infosys is also betting big on Generative AI and had recently launched its AI-first offering Topaz. Parekh noted, “We today have 50 active client projects where we are using Generative AI and this is becoming an increasing part of the new world which is going to be defined on an AI-first basis.”
Share buyback
One of the repeated concerns raised by the shareholders at the AGM was Infosys’ opted the open market offer route for share buyback instead of the tender offer route, due to which certain shareholders could not get any benefits.
Addressing the same, Roy said, “We have a five-year capital allocation policy which we’ve laid out for the financial year 2024 period. Within that there are three components — dividend, special dividend, and buyback. These allow predictability and consistency of returns and we only return 86 per cent back and the board looks at multiple elements such as EPS accretion, share price, the yield on a cash return and then determines the most appropriate way to return this capital back. As regards the latest SEBI mandates on buybacks, we will continue to see that and how they will be implemented over the next year or two years.”
Published on June 28, 2023
