Infosys CFO Given $3 Billion Challenge: Corporate India
V. Balakrishnan, who manages the biggest cash pile among India’s software developers as finance chief of Infosys Ltd. (INFO), has a new challenge: boost revenue fourfold at three business units in five years as growth slows.
Balakrishnan on Oct. 31 will relinquish his post as chief financial officer of India’s second-largest exporter of computer services to head the company’s biggest software product, its business process outsourcing unit and its Indian division. Balakrishnan plans to boost sales at each of the three units to $1 billion in the next three to five years, he said.
Infosys, which counts the maker of Johnny Walker whiskey and Volkswagen AG (VOW) as clients, is seeking new customers as competition from rivals including Cognizant Technology Solutions Corp. (CTSH) intensifies amid slowing sales in its biggest markets. The experience in running business units may help Balakrishnan, 48, prepare to lead the company when Chief Executive Officer S.D. Shibulal retires, according to A.S. Thiyaga Rajan, senior managing director at Aquarius Investment Advisors Pte.
“There are opportunities to grow in these three businesses, so there’s a greater focus there,” Balakrishnan said in an interview, declining to comment on speculation of him succeeding Shibulal. “Creating more billion-dollar businesses within the company will accelerate growth for us.”
Infosys plunged the most in three months on Oct. 12 after a reduction in its sales-growth forecast spurred some analysts to downgrade their recommendations. The shares dropped 1.2 percent to 2,365.6 rupees at the 3:30 p.m. close in Mumbai, the lowest since Sept. 5.
Bangalore-based Infosys reduced its forecast for this fiscal year’s revenue to 395.8 billion rupees ($7.5 billion) from a July estimate of 403.6 billion rupees, as Shibulal said the business environment continues to be “challenging.”
Net income rose 24 percent to 23.7 billion rupees in the three months ended September, Infosys reported on Oct. 12. That compares with the 23.8 billion-rupee median of 41 analysts’ estimates compiled by Bloomberg. Revenue increased 22 percent to 98.58 billion rupees, compared with the 99.3 billion-rupee median of 43 analysts’ estimates.
Balakrishnan’s move is the latest in the realignment of roles for the company’s top executives as Infosys attempts to boost sales. To revive growth that is forecast to lag behind the industry, Infosys has reorganized its business and shifted focus from outsourcing to software products and consulting divisions.
Rajiv Bansal, a vice president who reports to Balakrishnan, will take over as CFO, according to a statement from the company.
“They’re probably trying to give him exposure at different levels,” said Singapore-based Thiyaga Rajan, who manages $400 million in Indian assets at Aquarius. “Probably preparing him for something big.”
Balakrishnan will head the unit that produces Finacle, a banking software used by companies including Rabobank Groep of the Netherlands and Denmark’s Nykredit Group. The software has approximately 70 percent market share in India, Balakrishnan said in an interview in February. Revenue from the 15-year-old product rose 7.8 percent to $318.75 million in the year ended March 31, from $295.6 million the year before.
He will also run Infosys BPO Ltd., of which he is already the chairman, as well as the company’s Indian business. The three units generated a combined revenue of 38.4 billion rupees in the year ended March 31, versus total sales of 337.3 billion rupees at the company.
“I think for most Indian IT services business, sustainable growth is contingent on turning their smaller business into a billion dollar size,” said Ankur Rudra, an analyst at Ambit Capital Pvt. in Mumbai. “I think it’s achievable. Whether they will do it or not is a different question all together.”
The company aims to raise the contribution of products, platforms and solutions to a third of sales in five years from 5.8 percent. Infosys will have to make acquisitions to meet that goal, Shibulal said in an interview on Aug. 29.
Infosys is facing challenge from larger and smaller rivals in its attempts to expand. Cognizant’s revenue in the quarter ended June 30 rose 21 percent from a year earlier to $1.8 billion, surpassing Infosys’s sales for the first time, according to data compiled by Bloomberg. Tata Consultancy Services Ltd. (TCS) was the largest Indian IT-services provider, with revenue of $2.75 billion.
Infosys, which has a cash hoard of $4 billion, on Sept. 10 said it had agreed to buy Swiss management consulting company Lodestone Holding AG for 330 million Swiss francs ($353 million), adding more than 750 consultants and 200 customers in industries including manufacturing, automotive and life sciences.
“Infosys is clearly trying to revamp its business model, change its strategy,” said Walter Rossini, who manages $200 million in Indian equities at Aletti Gestielle SGR SpA in Milan. “So far we have not seen significant results. Maybe a management shuffle is in the cards.”
Infosys rotates important managers to give them broader experience, a practice that is also common at larger rival Accenture Plc (ACN), said Rod Bourgeois, an analyst in New York at Sanford C. Bernstein & Co.
T.V. Mohandas Pai in 2006 had stepped down as chief financial officer at Infosys after 10 years to make way for Balakrishnan. Pai announced his resignation as director and head of human resources development after 17 years at the company on April 15, 2011. He was expected to take over the role of chief operating officer, the Economic Times reported.
Changes began at Infosys last year when Shibulal, who helped found Infosys in 1981, replaced S. Goplalakrishnan as chief executive officer. Chairman N.R. Narayana Murthy retired that year. The company also reorganized itself based on four industry verticals, and shifted focus from application development and maintenance to software products, platforms and consulting.
“I think Infosys seems to be trying different things at different levels to get back to its past glory,” Aquarius’ Thiyaga Rajan said. “It was once the industry bellwether.”
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