Infosys COO, UB Pravin Rao, has been in the eye of a storm after his mentor and former co-founder and Chairman NR Narayana Murthy criticised the rise in salary given to him. In an interview with BusinessLine , Pravin Rao shares the company’s perspective on a whole lot of issues, including his pay hike.
If one takes away the 30 per cent of the dividend component out of the capital allocation policy, the payout (total of ₹13,000 crore) does not look so promising. Analysts too aren’t too very impressed with the total payout.
We want to be consistent with our policy. It is a combination of dividend and payout but it is not necessary for us to have a fixed ratio. We are listed in many exchanges across the world and we want to figure out the mechanics of how to go about it. Unlike some of our peers, for us, it is an ongoing thing and not a one-off. We revised the payout two years back and we talked about only dividend then. We are revising it again now. We have about $5 billion in cash and we wanted to address that issue. So, it will be a combination of free cash flow and dividend.
Does the new capital allocation policy have more to do with the recent demands made by the co-founders?
Our philosophy has been that we conserved cash. During the last two times, when we studied the situation, we decided to hike the dividend payouts. It was about 30 per cent and then it was 40 per cent and now it is 50 per cent. Whenever we took these decisions, we looked at what the shareholders are saying. So, looking at the future and given the potential growth of the industry, we looked at our acquisition strategy and the other part is we continue to generate cash.
Even when we do the payout, some part of the cash will go back to the reserves and we will keep generating new cash. This is an ongoing process. Some people have been vocal about it and have gone public with their views. But the fact is we meet our shareholders regularly. Also, it is an industry trend now if you look at what Cognizant and TCS have done.
The industry is talking about a slowdown and the challenges that comes with it. But is this the new normal, considering the situation in the US, the UK and Europe? How long will this last?
At least for a short to medium term, which is between one and three years. The way we look at it is that whatever rate the industry is growing, we will grow 3, or 4 per cent more.
So, how do you plan to grow at a higher rate?
There are actually three parts to our business. One part of our business is software which is a small part of it and we are putting in a lot of investment to accelerate it. The second is the commoditising part, which is a large part of our business. We are looking at improving the efficiencies and profitability and counter the commoditisation that is happening.
In the services area, there are new areas like digital analytics and cyber security, which come with a much higher margins and whether we can invest to grow further and faster. Consulting is another critical element but today, we are struggling for various reasons. In the coming years, rather than try to grow faster, we want to fix the underlying fundamentals and bring it back to profitability.
If we leave out the buyback part of the cash Infosys has, will the rest be used for acquisitions considering the fact there are either boutique kind of companies or those which carry very high valuations?
Most of it will be smaller acquisitions because we are looking at acquisitions in newer technologies. We are strategically moving into people plus software paradigm. With every offering, we are trying to build technology and make it more productive and more differentiated. Our current endeavour is to look at platforms and the products and technologies that are available are in smaller companies. Given all the potential risks in the US, if there are good candidates in services and has a lot of locals, that would be the ideal candidate. Strategically, we are looking at purely technological companies at this stage for acquisitions.
There have been allegations about how the husband of Ritika Suri (the head of mergers and acquisitions of Infosys) owned shares in the company before Panaya was taken over by Infosys.
That was an allegation made by the whistleblower. We have asked the particular individual who was involved in this and it is not true. We have appointed someone to do the investigation and we will see the outcome. To the best of my knowledge, it is not true.
But how has the Panaya acquisition panned out?
It is actually a mixed bag. It started off well and then in between there were glitches. We then changed the entire management and brought in a new CEO, CFO and a sales head. We have fine-tuned the strategy. We were earlier focussing on the ERP (Enterprise Resource Planning) space but with ERPs moving to cloud, we are now addressing SaaS (Software as a Service) kind of thing, as the future is more about SaaS. We are trying to address the life cycle of SaaS.
The new CEO is a very enthusiastic person and has a lot of ideas. We are confident it will do well. When you make an acquisition, you look at synergy benefits and Panaya synergies have done extremely well. The first year was good, the second year was a bit challenging and now it is on a path of recovery.
Former co-founder NR Narayana Murthy has in his latest missive talked about compassionate capitalism. Do you subscribe to his views?
From a philosophical perspective, I have no issues with it. I have worked and grown under Murthy. I have tremendous respect for him. In this specific case, we may not have done a good job of explaining it. Let us talk about my compensation first. We have taken the fixed part of the compensation and we reduced the fixed part by 10 per cent and as part of the last year’s compensation, every one’s compensation changed as happens every year.
We have ploughed back a lot more into the variable. As part of it, ₹4 crore was given as options. We came with this RSU plan and an option plan for a large portion of employees. In July, we rolled out the RSU plan for the middle management level. About 20 per cent of the employees got that. We first took care of the juniors and then the seniors. Being a board member, I have to seek shareholders approval. Therefore, it got the visibility.
So the figure about ₹4 crore is not guaranteed in my contract. If it is vested over four years, at the end of the fourth year, it will be 32 per cent. For this year, it is 1.8 per cent. For the rest in the company, we have 5-9 per cent.
Let me tell you, my conscience is clear. I don’t think we have done anything wrong. We have given higher compensation to the junior level and in some cases even 100 per cent and at the senior level it is about 40 per cent. The reality today is that it is a competitive world and our salaries have to be competitive too.