Infosys Q4 results: Infy needs to make a major acquisition

Infosys Ltd's results for the fourth quarter of fiscal 2017-18 and the full year are in and the numbers don't look pretty. After the initial euphoria under the Sikka regime, it is back to the phase, where it is struggling to grow. Even more worrying is that its guidance for next year is disappointing.

The management has blamed the external environment and the churn happening in the industry. While that is partly true, a large part of the blame also rests on the internecine feud between the promoters and the current management, which is distracting the company at a crucial time.

If the current momentum continues it is unlikely to achieve the publicly stated target of achieving $20 billion in revenues by 2020, with industry leading margins and revenue per employee of $80,000. The company is likely to end up short on all of these promises.

As a palliative measure, the board has announced an enhanced capital allocation policy which includes more generous dividends and a buyback offer but with no clear timelines. Usually a company announces buyback when it believes its shares are being grossly undervalued by the market. Concern in Infosys case is that whether the current buyback is an exit strategy being provided to promoters.

Also instead of buybacks and even more generous dividends, the company if it believes in the business, should make a large acquisition. Large because at Infosys's size that is the only way to move the needle. It needs to try new things as the old ones clearly seems not to be working.

Instead of trying to manage steady decline in its fortunes or just milking the existing business model, Sikka and his team need to make bold bets.