Infosys is changing – Turbulent present, but a decisive future…

If one were to look at the below-expectation revenues and profits of Infosys, it would be a disappointment. The dollar guidance at 10-12% may give some room for comfort. But both these numbers can be misleading. The real reason to celebrate is that Infosys has started to change; and that too decisively.

Use up the cash, smartly…

That is probably the best thing that Infosys has done. Apple learnt it the hard way that hoarding cash is not a great idea. Let us closely look at what Infosys has done in this quarterly announcement. They have announced a bonus of 1:1, bringing the price closer to the Rs.1000/- range. The bigger announcement is on the dividends front. The company has expressed its intent to maintain a dividend payout ratio of 50%. This means that on an EPS of Rs.200 (pre-bonus), one can safely expect a dividend of Rs.100 per year. At the current market price of Rs.2000/-, this works out to a dividend yield of 5%. I can’t recollect too many frontline Indian companies with 5% dividend yield. This will surely act as a floor for the Infosys price. That is the best way to use up the cash stash of $6 billion.

IT is changing, so are we…

This was the biggest take-away from the pronouncements of Vishal Sikka. For the first time an IT CEO has come out and openly stated that the old model of the Indian IT is dead. Vishal Sikka is bang on target! A model based on outsourcing orders from the BFSI, telecom, retail and energy space was always flawed. There are two reasons to understand. Firstly, the software services the world over is shifting focus to SMAC (Social Media, Mobile, Analytics and Cloud). This is where Sikka’s varied background comes in handy. Infy’s current model has few sustainable advantages. The recent acquisitions by Infosys in the area of digital and mobile, is the right way forward!

It’s a matter of size…

There were surprised reactions when Vishal Sikka spoke about taking Infosys to a $20 billion company by 2020. But that is entirely possible. It is just that Indian IT companies need to think big. For example a much younger Google earns $55 billion each year from advertisements alone. Facebook, with a mere 10 year history, is already worth $200 billion. Not to forget, Apple, which started around the same time as Infosys, is the most valuable company in the world with a market capitalization of nearly $700 billion.

Let us not miss the wood for the trees. For Infosys, we need to get the bigger picture right. It is not about the next quarter. It is about the next 16 quarters. And that could make all the difference for a new look Infosys! ©

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