“I had Infy shares… And now #Iamsomiddleclass,” a Twitter user named ‘Common Man’ tweeted, when the stock of the erstwhile investors’ darling fell more than 21 percent.
Had he owned the stock, he would not have made this remark on a day the stock lost most of the gains it had managed to amass over the last three months.
According to media reports, the stock had risen about 25 percent over the last three months as investors turned bullish about the company after its forecast-beating earnings show for October-December.
And there were not many indications from the company about what is in store for January-March. So, the company is to be blamed for the fall in shares for sure. But can analysts be absolved of the any responsibility?
No. Because according to this report in Moneylife, “in 5 out of 8 quarters, analysts have been horribly wrong about Infosys’ results”.
“Predicting Infosys’ earnings is turning out to be a tricky affair for analysts tracking the IT sector,” another article in Moneycontrol said.
Earlier, there was no question whether the company will over achieve its guidance or not because its estimates were conservative.
“So whatever Infosys’s guidance, analysts would mark up their estimates, confident that the company would deliver,” the Moneycontrol article said.
But things changed drastically after the company’s management transition started. And now with the big shocker in the fourth quarter of 2012-13, there are very few experts who expect a Tiger Woodsian comeback anytime soon.
For most of the experts, the lack of confidence in the company’s comments is particularly disappointing.
So what is the big mistake that Infosys made? According to Partha Iyengar, who heads research at Gartner Inc’s India office, quoted in a Mint report today, the changes in Infosys came at a time when the company was weak.
“If you’re in a position of strength and you’re making changes, then it’s alright. But when your position is weak, you should not be making drastic changes,” he was quoted as saying in the report.
On Infosys 3.0 strategy, Infosys CEO SD Shibulal admits in the report the volatile economic situation has impacted it. Infosys 3.0 is aimed at increasing revenue share from big data solutions, products and platforms.
And for the company to revive its lost glory, the key is introspection and reflection.
Needless to say, the company has to become more aggressive, as Iyengar puts it. This, however, has been a major complaint about the company for long.
Analysts and shareholders have always asked the company to make more productive use of its cash hoard of about Rs 20,000 crore.
And now the big question. Are there any signals from the company that can be read as positive?
One should say yes. For example, one of the pointers to the change is the $100 million fund the company has set up. The fund is expected to give a much needed impetus to the company’s products and platform business.
According to an interview of CEO SD Shibulal in the Economic Times, the investment mandate for the fund is global “but some of it will go into incubating ideas from inside the company”.
This is one of the most positive signals considering the successes of the companies that Infosys had earlier incubated, namely Yantra and OnMobile.
“There will be a core committee set up to head it (the $100 million fund). The committee will include 2-3 board members, and there will be an internal committee to identify ideas and bring it to the table. In terms of single person, for the time being, Deepak Padaki (AVP, head M&A) will have responsibility for it,” Shibulal said in the interview.
There are positive developments on the succession planning front too. According to the Mint report today, some directors on Infosys board want the search for a successor to Shibulal, who will retire in two years, “to include external candidates”.
“Given recent performance, a more thorough hunt that includes candidates from outside too is something high on the agenda,” a person close to the development has been quoted as saying in the report.
So investors can take heart from the fact that the company may be finally changing its tack on succession planning.
Now, comes the billion dollar question about utilising the huge cash pile. What is the company going to do with it? Will it use it for more productive purposes or keep investing it like the 90-year-old uncle?
There is no reason to believe that there is not going to be a sea change in this approach soon.
In the interview, when asked about acquisition plans, which the company has been harping on, Shibulal said product and platform valuations are high.
“The interesting ideas you see – even in start-up firms the valuations are high. Products and platforms are not geography-specific and we will look across industry verticals,” he said.
He also said Infosys has “identified seven themes such as digital consumer, emerging market, sustainability, e-commerce” of which digital marketing is strategic given the importance of the retail sector in the company’s portfolio.
These comments are neither giving much clarity on its acquisition plans nor are they coming from a company which is leaving its conservatism to become more aggressive.
But for Infosys to regain whatever it has lost, as argued in this Firstpost article, the way to go is inorganic. The management will have to bring about this change at the earliest, before the already disgruntled staff leave the ship en masse.
No comments:
Post a Comment