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Infosys cash return is a welcome distraction
April 13, 2017 / 8:01 AM / 7 months ago

Infosys cash return is a welcome distraction

MUMBAI (Reuters Breakingviews) - Infosys’ cash return is a useful distraction from bigger questions. Boss Vishal Sikka is following his rivals at Tata Consultancy Services (TCS) and HCL Technologies in returning up to $2 billion of its unused war chest. The payout will help lift some of the gloom around the Indian IT firm, which has been beset by worries about slowing growth and top-level disagreements.

Infosys Chief Executive Vishal Sikka attends a news conference in Mumbai, India, February 13, 2017. REUTERS/Danish Siddiqui

The return is due this financial year via dividends or buybacks. It equates to roughly one-third of Infosys’ cash pile and reflects a shortage of big takeover targets. That should help keep investors onside. They have already done reasonably well since Sikka took charge in August 2014. Total shareholder returns stand at 22 percent, compared to a more or less flat performance at its largest rivals TCS and Wipro. But that is slightly below the wider Nifty index.

Graphic: Not all bad news at Infosys: reut.rs/2p8T2gC

There would have been little to cheer otherwise in Thursday’s results. Infosys gave conservative guidance for between 6.5 and 8.5 percent revenue growth, holding currencies constant, for the year to March 2018, after delivering 8.3 percent in the year just finished. That’s disappointing given that India’s IT firms have traditionally been leveraged to U.S. corporate profits, which are rising.

At best, Infosys expects operating margins to match roughly the 24.7 percent achieved last year. That will be a challenge given a volatile rupee and uncertainty over work visas in the United States – where research house Morningstar estimates 12 percent of the Indian firm’s workforce is located. If that wasn’t enough, Infosys is also attempting a big shift in its business model, racing against industry commoditisation to become more innovative.

An unusual move to promote independent director Ravi Venkatesan as co-chairman may help Infosys focus. The company’s founders have publicly criticised Sikka’s pay, and severance packages paid to other executives. The concerns seem overblown but Venkatesan, former chairman of Microsoft India, is accustomed to guiding through difficult times. He has done a good job chairing Bank of Baroda – a rare example of a private-sector professional leading a large, state-controlled lender.

Against a challenging backdrop, Infosys’ decision to throw cash and talent at investors seems sensible.

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