Investments we are making now will pay off in coming years: Infosys CEO

Salil Parekh, Infosys CEO
For the second consecutive year, Infosys cut its margin guidance for the ongoing fiscal (FY20). While the Bengaluru-headquartered IT services giant has shown some momentum in the large deal space in FY19, rebadging of clients’ employees apart from investment in joint venture (JV) entities have raised some concerns about the future margin trajectory. Salil Parekh, chief executive officer and managing director, tells Debasis Mohapatra & Yuvraj Malik that the drop in profitability was due to its continued investment in people and technology, which would yield dividends to the firm in the coming years. Edited excerpts:

Infosys’s margin guidance was under lens before the earnings announcement. Is the business structurally entering into a low-margin cycle or is it just a temporary blip?

There is no structural issue in the business that is impacting margins. It’s a high-margin business. Our aspiration will always be to remain a high margin player. Our digital business operates at a significantly higher margin. It now constitutes one-third of our revenue, and is growing at over 30 per cent. As this part (digital) becomes bigger over time, it’s going to help our margin profile. Currently, we do want to make investments. Our investment in sales is already starting to show some impact. The other is digital, which is also starting to show some impact. We are also building model resilience through localisation, because this a medium-term strategic imperative. We believe this is the right thing for us to do because we are building Infosys for the next 15-20 years and not for the next quarter. For us, this transformation is critical because the more successful we are at it, the more Infosys will grow.

Revenue has shown a good momentum in the last fiscal. But in the joint venture and partnership model, is margin the first casualty?

In terms of growth, we are starting to see traction. The two specific joint ventures we announced — one with Temasek in South East Asia and the other with Hitachi-Panasonic in Japan — are very strategic moves for us in the medium term. In the next quarter and the next year, they will have an impact. These are partners which are massive players in their respective geographies. For them to select Infosys as a partner is a huge thing for us. There is no impact of those partnerships on margins. In the short term, it’s not a huge revenue play, but it’s a very strategic move in the long term. As those geographies develop, we see a good future for the partnerships.

Despite all your efforts, the attrition rate is still high. Are your interventions not yielding adequate results?

We are analysing where the issues are. They are primarily in two areas — we are seeing higher attrition for employees of certain experience level which is 3-5 years kind of experience level in India, and 2-4 years of experience in the US. We are looking at interventions to address it. It is not only about compensation because it is an easy thing to fix. There are multiple things, including work engagement. We are also investing in skilling people with new skills which will help them in their career progression. We need to do a better job in articulating that — better job in terms of rotating people and deploying their skills in the right projects and so on. There are multiple initiatives both on the enablement side as well as reward and recognition side (which are underway). It’s an ongoing thing and it will take us probably a couple of quarters to fix.

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