24 May 2016 07:36:22 IST

What has changed for Infosys with Vishal Sikka?

The CEO’s focus on innovation has helped improve delivery and competitiveness

In the annual report for 2015-16 that was released last week, Infosys reported that its CEO and MD – Vishal Sikka took home a fat pay of ₹34.3 crore in 2015-16 (excluding the variable pay of ₹14 crore for 2014-15 that was paid in 2015-16). This was higher than the previous year’s ₹18.56 crore. Sikka’s salary hike is a good 85 per cent while the increase in the median employee remuneration (MRE) was a mere 6.4 per cent.

Yawning gaps between pay packages of top bosses and employees are not a new trend within corporate India. Last year, a BusinessLine study on India Inc’s CEOs pay had revealed that for a fourth of Nifty companies, the CEO/MD’s salary was in the range of 75-100 times of the average worker. Infosy’s Sikka’s pay which is a good 658 times of MRE, is one of the many outlier firms in the Nifty pack, where the pay-gap ratio is way above this range.

But is Sikka’s pay justified? Details that form part of the annual report show that the company saw revenue grow 14.1 per cent and net profit increase 8.5 per cent in 2015-16. The company’s stock price went up 9.8 per cent.

Sikka took over as Infosys’ CEO and MD in August 2014 when the stock’s valuation was inching lower every quarter. Between 2010-11 and 2013-14, Infosys recorded an annual growth of only 11 per cent vis-à-vis TCS’ 18 per cent. When September 2014 quarter numbers were released, the first quarter after the new CEO stepped in, analysts were still not sure if things would improve as the revenue guidance for 2014-15 was kept unchanged at 7-9 per cent (dollar revenues) which was half of what TCS was likely to deliver. The March 2015 quarter result, three months later, as it turned out, was a damp squib.

But, things have changed in the last four quarters. All leading indicators now signal a turnaround in the company.

Turnaround Sikka’s focus on innovation, use of design thinking to create proposals for clients plus the re-skilling of man power and leveraging of automation tools (thanks to Panaya acquisition) has helped improve delivery and competitiveness.

Attrition in the recent March 2016 quarter was 12.6 per cent, down from a year ago of 13.4 per cent and way lower than 21.1 per cent in the September 2014 quarter.

Employee utilisation stands at 80.1 per cent, up from 78.6 per cent in the same quarter last year.

In 2015-16, the company added a total of 325 new clients (gross) - higher than the last five year’s average of 200 clients a year. The total contract value of large deal signings in 2015-16 was $2.79 billion, 45 per cent up over the previous year’s $1.927 billion.

Revenue growth for the full year 2015-16 was 13.3 per cent in constant currency terms, ahead of both its own guidance (10-12 per cent) and market estimates. For 2016-17, the company has given a revenue guidance of 11.5-13.5 per cent (in constant currency).

‘To do’ list Infosys also outdid TCS last fiscal. TCS recorded a constant currency growth of 11.9 per cent.

There is still, however, a long list of things to be done. In its vision 2020, the company has indicated that it wants to hit target revenue of $20 billion at 30 per cent EBIT margin and revenue productivity of $80,000/person.

To achieve this, the company would have to grow revenue at a CAGR of 19 per cent plus and pull up more margin levers.

The revenue per employee stands now at about $48,963 and EBIT margin in the March 2016 quarter was 25.5 per cent.

Profit margins have been improving over the last few quarters, but, given the rising pricing pressure, Infosys needs to further improve onsite-offshore mix, employee utilisation and productivity. Infosys Information Platform and Infosys Automation Platform have seen about 220 and 125 engagements in 2015-16 with about 3,900 full-time employees freed up due to automation. If these numbers continue to improve, margins may also edge up.