Panaya pain haunts Infosys; Parekh assures stronger due diligence in AGM

The Panaya and Skava issues dominated the discussion at the 37th annual general meeting of Infosys on Saturday, with shareholders questioning the board’s decision to acquire the two firms and then sell them. Constant buying and selling of subsidiaries, they said, proved to be a drain on the cash flow of the company, eroding shareholders’ wealth. They also flagged up concerns about the rising number of loss-making subsidiaries. 
Shareholders were, however, appreciative of Salil Parekh’s appointment as the chief executive officer and managing director of India’s second-largest information technology services firm, and reposed strong faith in his ability to chart out the company’s future growth.

“Why is the company selling Panaya? Infosys is not a loss-making company. So, why sell Panaya when it is incurring losses,” asked Sadananda Shastri, a veteran shareholder and a regular at Infosys AGMs.

“Such constant buying and selling is affecting shareholders’ wealth. Also, the company should clarify why so many subsidiaries are incurring losses. This has an adverse impact on small shareholders like me as (the company’s) cash flow deteriorates,” said P N Nayak, another shareholder.

In 2015, Infosys acquired Panaya, an Israeli software automation company, and Skava, a US-based mobile commerce solutions provider, which were the first two major acquisitions by the then CEO Vishal Sikka. The combined value of these acquisitions was around $320 million. However, these acquisitions witnessed a major controversy following whistle-blower complaints, which also prompted co-founder N R Narayana Murthy to raise concerns over “lack of transparency” in the deals. This snowballed into a full-fledged corporate governance issue, eventually leading to the exit of Sikka and others.  

The company had announced its plans to sell Skava and Panaya, after incurring an impairment loss of around Rs 5.9 billion, during its last quarterly review.

Even though the management avoided a direct reply to the shareholders’ concerns, Parekh said the company would be careful in its due diligence process in its future acquisitions. “One of the things that I mentioned was programmatic M&A that we are trying to put in place. And within that it’ll be a careful part of our capital allocation policy to ensure that the things we’re acquiring, we follow the due process to make sure that things are delivering the value,” he said.

Some of the shareholders also raised questions over high severance packages, the widening salary gap between top executives and mid-level employees, and rising attrition level at the company.

Shareholders turned up in large numbers for the AGM, while founding members, including Murthy, were conspicuous by their absence. 

Non-executive Chairman Nandan Nilekani, however, played it down, saying most of them were travelling. Nilekani sought to drive home the message of stability in his address to shareholders. “When I stepped for the second time into Infosys in August 2017, one of the concerns raised by you (investors) was about the company’s stability. We have very stable board, everybody is united, and we are on the verge of something momentous. The focus is on relentless execution,” he said. Nilekani also said the company was well-placed to cash in on emerging opportunities in the digital space. “We are at an exciting juncture in the journey of our industry. I have never seen as many possibilities to partner with and grow along with our clients as I see today. Every industry, every sector is undergoing transformation, driven by the digital revolution that engulfs us,” he said.

The company, which drew 25.5 per cent of its revenue from the digital space during the last fiscal, said it was investing on continuous reskilling of its employees. “We have extended our campus hiring with recruitment beyond India, to the US and the UK. Now, we have started hiring from design schools and graduates in liberal arts,” said Chief Operating Officer U B Pravin Rao.

Under the new leadership, Infosys has charted out a three-year road map with the focus in the first year (FY19) being on bringing back stability, in the second year on building the momentum, and then accelerating the growth.

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