Infosys CFO V. Balakrishnan, who is stepping down at the end of the month to take other responsibilities after a six-year stint, believes that the pressure on the operating margins, which the company faced during the last quarter, is temporary in nature. Excerpts from an interview he gave to The Hindu:
Can you explain what caused operating margins to dip by 160 basis points during the last quarter?
The currency had no role. The dollar-rupee rate was almost similar to the previous quarter. Some of the other costs went up, notably the cost of sub-contracting and of post-sales customer support. A lot of other small costs also went up. The biggest element was the sub-contracting costs.
Is it a one-off element or have you had it in the past, too?
We use sub-contracting as a short-term measure when we have a lack of specific skill sets. But that will get normalised over time. When we do more and more of high-value work, like SAP consulting, we may find it difficult to find resources internally. Our aspiration is to replace sub-contracted work by our own people. But there is a lead time involved in this.
How much does the currency volatility bother you?
The situation is evolving. The reform measures have resulted in capital inflows. But the trade deficit is still $18 billion, oil prices are still high, and geopolitical risks remain. Global uncertainties remain, and all currencies are volatile. I expect the rupee to be in the 50-53 range in the next 3-6 months.
Have you managed to internalise the volatility?
We do not take a long-term view on currencies. If you do not know where things are headed, why take a risk? So, we have decided to hedge for two quarters at a time, which has worked very well for us in the last 2-3 years. In the last quarter.
If you say the global situation is volatile, why did you have to make the Lodestone acquisition at this point?
There is no good time or bad time for these things. Today, there is space in the market for a domain consulting group. And, you can have a take on the customer’s IT budget, even though it may be discretionary in nature. You also need the consulting business to generate higher value in the traditional lines of business. Of course, it is a tough environment to make an acquisition, but when there is stability, we will have a perfect platform to grow faster. We want to create many more billion-dollar babies within the company
Can you comment on your moving on from the CFO’s position?
The organisation needs to create a set of young leaders. This company has always had that tradition. I will focus on other parts of the business.