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Despite challenges, Infosys won't change tack

At the Annual General Meeting on Saturday, CEO SD Shibulal said that it would continue to go after high-margin businesses even if there are "temporary" hiccups.

twitter-logoGoutam Das | June 11, 2012 | Updated 10:27 IST

Infosys Annual General Meetings (AGM) are usually cork-popping moments. Financial presentations from the CFO are interspersed with Bollywood music; emotional shareholders recite poetry and praise executives to the hilt.

This was not the case this year.

On Saturday, at the company's 31st AGM, one shareholder walked up to the dias and aptly summarised the mood. Drawing from cricket terminology, he quipped, "Shibulal (CEO) has been bowled in his first year itself. He should seek help from Ratan Tata."

READ: The Infosys dilemma: Revenues or Profit?

The context was Infosys' sharp share price fall after the company offered a weak growth outlook for 2012-13 in April - India's second largest IT exporter had guided an 8 to 10 per cent revenue growth for the year, as much as five percentage points lower than analyst expectations of 11 to 13 per cent growth.

TCS, in contrast, saw its shares soar after the firm's executives said that all was fine with the company.

Many other shareholders questioned Infosys' performance and why the company, once the darling of the stock markets, was losing sheen, growing slower than TCS and Cognizant. Investors also questioned the company's hoarding of cash, its strategy on loss-making subsidiaries, visa cases the company face in the US and its potential fallout.

PERSPECTIVE: Cognizant cuts outlook but may pip Infy soon

Infosys, facing these many uncomfortable questions for the first time since it went public, put up a brave front. Addressing his first AGM, CEO S.D. Shibulal said: "I am confident of continuing the legacy of previous CEOs."

He went on to elaborate on the company's high-value services and indicated it would not back down from its strategy of going after high-margin businesses, even if there were "temporary" hiccups. Over the past few months, institutional investors have been scathing in their criticism of the company's strategy to sacrifice growth for margins.

"We had a choice to make between commoditisation and redefining the industry. We chose to redefine the industry. This will get us high quality and long-term growth," Shibulal said.

While Infosys had truly redefined the industry in the past through its global delivery model, it is now too early to conclude if the company's consulting and IP-led approach can create magic yet again. Shareholders are not convinced yet.

The company's management, nevertheless, convincingly answered rest of the bouncers.

Why should you pay such high salaries to software professionals? It is adding to inflation, Srinivas Rao, a shareholder asked. The answer: Since Infosys competes globally, it has to recruit the best talent. They don't come cheap.

Why is the company hoarding $4 billion cash? Why it is not acquiring companies, an investor asked. A smiling V. Balakrishnan, the CFO, replied, "During the 2008 crisis, cash was god. It is a good problem to have. "

Shareholders would eagerly wait and watch how the company solves the not-so-good problems - execution on its strategy, growth, and staving off an 800-pound gorilla called Cognizant.

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