June 16, 2017 5:52 pm JST

Infosys looks to tweak 2020 revenue target as IT spending shifts

MUMBAI (NewsRise) -- India's Infosys is drawing up a new goal to replace its much-talked-about $20-billion revenue target by 2020, as the information technology behemoth contends with tapering global investments in stock outsourcing services.

The nation's second-largest software exporter had in 2015 said it aims to clock $20 billion in revenue, with a 30% operating margin by 2020. The target, set by Vishal Sikka, the first non-founder chief executive of Infosys, stirred hopes of a turnaround at the company that was until then grappling with declining revenue growth and a churn in top management.

However, a shift in client spending to new Internet-based technologies and internal challenges arising from differences with founders has crimped the pace of growth at the New York- and Mumbai-listed company over the past one year. In the last fiscal year that ended in March, the pace of Infosys' revenue growth dropped to 8.3% from 13.3% a year ago.

"The numbers seem achievable. (But) the time frame to achieve that is a different thing. Realistically, it does not look like they will be achievable by 2020," Ravi Venkatesan, the newly appointed co-chairman of Infosys, told local newspaper Economic Times in an interview. According to Venkatesan, Infosys has appointed a new committee of directors to work with CEO Sikka and the management to see "what takes the place of these targets."

Analysts say a large part of Infosys' troubles stem from challenges facing the entire IT industry.

"With increasing shift to digital technologies there is a lot of cannibalization of their existing revenue," said Apurva Prasad, analyst at HDFC Securities.

Sikka, who took over as CEO in 2014, has been trying to remake Infosys's business model even as the $108-billion software export industry undergoes a paradigm shift. Clients, who sought to invest in stock outsourcing services that relied on an army of programmers, are looking for providers offering solutions based on new Internet technologies such as cloud computing and artificial intelligence.

At an investor conference earlier this month, Infosys's operating chief U.B. Pravin Rao said clients are seeking up to 40% cost savings from traditional businesses such as software maintenance and infrastructure services, which they want to reinvest in new digital technologies.

Rising protectionism in Infosys's key markets such as the U.S., which is tightening its skilled-worker visa program, has further clouded the company's prospects.

Over the past year, CEO Sikka has also been battling a barrage of criticism from the founders, who had alleged a drop in corporate governance standards at the company. Earlier this year, Infosys founders led by N.R. Narayana Murthy publicly questioned the outsize pay hikes offered to Sikka and Rao, as well as large severance packages offered to some of its former executives. Sikka has in the past alluded to such instances as "very distracting."

Separately on Friday, Infosys announced that long-time veteran Sandeep Dadlani, the president and head of its Americas business and manufacturing and retail software divisions, stepped down from the company.

The company didn't give any reasons for Dadlani's resignation. Dadlani, who has been with Infosys for 16 years, is also the chairman of the EdgeVerve unit that houses Infosys's products and platforms business. He was recently also asked to help generate more business from the company's new software solutions, including its artificial intelligence platform.

Infosys has appointed Karmesh Vaswani as the new global head of retail and consumer business, and Nitesh Banga as the global head of manufacturing, it said in a statement to the exchanges.

Dadlani's departure is the latest in a series of leadership changes under Sikka's watch. So far nine senior executives left the company after he took over.

"Dadlani was an integral part of Infosys for the past 16 plus years and his exit is clearly a setback given his strategic portfolio holding and the current headwinds in the IT sector," Mumbai-based brokerage Edelweiss said in a report Friday. "This yet again raises the stability issue as well portends risk of more exits."

Infosys shares lost 0.9% in afternoon trade in Mumbai, while the benchmark S&P BSE Sensex was up 0.1%.

--Dhanya Ann Thoppil

Asia300

Infosys Ltd.

India

Market(Ticker): BOM(500209)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 33,457.65M
Shares: 2,296.94M

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