Business Today

Heads I win, tails I win

In a year in which Infosys showed negative growth for the first time in its history, its CFO did well to avoid a big-time erosion in value.

Rahul Sachitanand | Print Edition: May 2, 2010

Best in Wealth Creation (Large Company)


  • Background: B.Sc. degree from the University of Madras. He also holds ACA, ACS and AICWA degrees. Has spent 19 years in Infosys; was at Amco Batteries earlier.
  • Winning move: Repaying investor confidence with four one-time dividends.
  • Challenge ahead: To put Infosys back on the fast-growth path.
  • Most likely to be heard saying: "Cash isn't king, it's god."
It's not easy being the CFO of Infosys. Over the past decade, Infosys has routinely grown its revenues faster and been more profitable than many of its Tier I peers. The company is recognised for its transparency in dealing with investors, routinely passes on wealth it creates in the form of one-time dividends and is cited across forums for its corporate governance norms.

Its previous CFO T.V. Mohandas Pai (he's now Director for HR, Facilities and Administration) oversaw Infosys' finances at a time when the IT sector was growing at 30-40 per cent annually and Infosys seemed to have more work than it could handle. Then in 2006, Pai, an outspoken critic of everything from Bangalore's lax administration to education reform, decided to step aside and reshape Infosys' HR policies instead.

The man who replaced him, Venkatram Balakrishnan, 44, joined Infosys when it had just 250 employees and barely a few million dollars in revenue. This was back in 1991, when an IT career was frowned upon (Balakrishnan's mother did her best to dissuade her son from quitting a stable job at Amco Batteries) and companies such as Infosys struggled to dodge a raft of restrictive government norms around foreign exchange, travel and establishment of new companies. "I wanted to be part of the future," says Balakrishnan.

He came aboard Infosys a couple of years before the company went public in 1993-the promoters had struggled to get the issue subscribed. "I liked the idea of a small company developed by first-timers with their own funds," Balakrishnan adds. Under two years after he became CFO, Balakrishnan found himself face to face with a global economy that had nose-dived with scarred clients cancelling or postponing contracts to try to stay alive. For the first time in its history, Infosys declared negative growth for fiscal 2008-09.

According to BSE data, Infosys shares lost 3.2 per cent between April 1, 2008 and April 1, 2009. But that's still a smaller fall than for peers like TCS (where the decline was 35.6 per cent) and Wipro (which lost 38.3 per cent). "It is my job to create wealth for shareholders," says Balakrishnan. "We are not owners of the company. We are trustees of the shareholders."


  • Keep a year's revenues in reserves to fund potential acquisitions.
  • When extra wealth is created, share it generously with shareholders.
  • Double training time in a slowdown to get employees ready for the turnaround.
The company-led by CFO Balakrishnan-reacted sharply on the financial front, freezing pay hikes and promotions and curbing travel budgets. "We needed to focus on our people costs, which formed roughly half of our expenses," says Balakrishnan. More recently, the good times seem to have returned, with Infosys paying out variable salaries to employees somewhat cockily called Infoscions and announcing promotions and pay hikes. "We did not hold back campus offers and instead doubled training time to make our employees ready for the turnaround," he says. These proactive measures have helped Infosys keep its margins 7-8 per cent ahead of its Tier I rivals in the industry, claims Balakrishnan.

His colleagues say that he's always been the quiet performer. "Bala was associated with finance for 20 years, but he's been less visible than most other long-timers even though his work is as critical," says a former executive, who ran a $200-million unit for Infosys. "Unlike Pai, he isn't a public face for Infosys. He seems happiest away from the public glare." While his first decade-and-a-half at Infosys allowed him to do just this (rising from Senior Manager, Finance to Senior VP and Company Secretary), it was his elevation to CFO in April 2006 that catapulted him into the limelight.

A self-confessed technophile-he owns multiple Apple gadgets, including a pre-booked iPad-Balakrishnan became CFO in the same year that Founder and Chairman N. R. Narayana Murthy stepped down; a year later another founder (Nandan Nilekani) stepped down as Chief Executive, moving to a broader Co-Chairman role. In that sense, he is part of the new-generation leadership at Infosys.

Since Balakrishnan took charge, Infosys' cash pile has tripled from $1 billion to over $3 billion. "The slowdown has made companies realise that cash isn't king, it's god," he laughs. "Infosys' cash flow is superior to its peers even if its quarterly income numbers match or even lag them," says Viju George, Executive Director with JP Morgan India.

Analysts argue that Infosys could do more with its cash but Balakrishnan is cautious. "We like to keep around a year's revenue in our reserves, especially with several interesting acquisitions in the market," he explains. Balakrishnan is able to define risk-reward functions very clearly. For example, when Infosys and HCL were in a tussle for Axon, he was clear on a fair value for the company. "He was unwilling to overpay," says George.

Rather than raise costly funds to finance these deals, Infosys clearly prefers to pay by cash. "When we generate extra wealth we share generously… we have had threefour one-time dividends," he adds. And it's not like Infosys has done badly on key financial metrics in 2008-09-its return on capital is 45 per cent and return on invested capital is at least 80 per cent-both above internal benchmarks. "He is able to look beyond the income statement and focus clinically on more balance-sheet issues such as cash flows, working capital and return on capital," adds George.

Yet, there is plenty to do. In its key focus markets such as financial services, manufacturing and telecom, Infosys is no longer among the top three vendors, say executives from two competitors; and with the loss of Nilekani and Murthy (who retires from his post as non-executive chairman next year and has set up an investment fund, Catamaran), Infosys has been caught flat-footed on many large contracts over the past 24 months. The finance department may be partly to blame for this, the flip side to Balakrishnan's conservativism.

"Balakrishnan's rigid financial structure and inflexibility with pricing during the slowdown saw Infosys lose out on several deals to its peers," says George. "It seems the CFO office at Infosys is overpowering and more leeway must be given to the business units." Then Balakrishnan's policy of hedging for the near-term is debatable. It works when the rupee falls to Rs 48 to the dollar, but not when it rises to Rs 44. As the world limps back to normalcy, Balakrishnan will be hoping he can more richly reward Infosys investors in future.

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