"It is no longer the King Khan of the markets," CNBC-TV 18's anchor Latha Venkatesh said on Thursday minutes after fund manager Andrew Holland declared, "It is not a growth stock anymore." The comparison of Infosys with Shah Rukh Khan is striking and alluring for those watching both Bollywood and Bangalore. And in both cases, I would like to add, where one person sees the devil in the details, the other may see God. It is time to look beyond the market's simplistic logic, whether it is Shah Rukh Khan or Infosys, which disappointed markets with below-par results and a tepid outlook.
The question to ask on Infosys is: Can the company adapt well to the new era of Donald Trump-driven US protectionism on the one hand and changing business models in the age of artificial intelligence, data science, software automation, cloud computing, Internet of Things and machine learning, away from the times when it simply arbitraged between low-wage India and high-wage US to write code by the hour?
The question to ask King Khan Inc is: Can Shah Rukh Khan the producer running Red Chillies and championing entertainment properties like Kingdom of Dreams amid competition from the likes of Fox Entertainment do as well as he did in the age when he could simply do some smart romancing, tilting his head with with some elegant stammering and dancing?
In both cases, we need to look at the idea of reinvention. And I might add: In both cases, the parties are smart, experienced and cash-rich. Time for Vishal Sikka to have a drink with SRK, perhaps?
Seriously, the thing to look for is the way they embrace the future. Shah Rukh's Dilwale showed that he can ride piggyback on young actors like Varun Dhawan in a common script. Raees was a clear box office hit, aided by new-age actors like Nawazuddin Siddiqui.
Similarly, Sikka is adding strong intellectual property and product driven innovation within the old services sector. He has brought to Infosys the Raees smarts: Baniye ki dimaag, miyabhai ka daring. (The sharpness of a Hindu trader, the courage of a Muslim warrior, in a rough-cut translation). We do need to remember Sikka said he fights like a kshatriya -- somewhat foot in the mouth.
There was no daring in Infosys through the years it sat on piles of cash without making acquisitions, and that is what led to growing demands for dividends. Sikka has brought in some daring but is facing a digital disruption that SRK is facing as well. Both need to embrace a multi-screen universe and a young, interactive, demanding market.
By declaring a fat dividend/share buyback involving a payout of Rs 13,000 crore, Infosys has assuaged markets concerned about idle cash. The rupee is also unusually strong and bad for all export-oriented companies.
Industry researcher Gartner's outlook of a slowdown in growth earlier this week applied to the global technology industry as a whole. Why single out Infosys? Sikka has also had to face uneasy moments in boardroom battles. The irony is that while the previous Infosys management led by founders was accused of being stingy, they are now accusing Sikka of being generous in senior management payouts.
No doubt Sikka has to learn how to manage a low-wage legacy business with cutting-edge technologies in a disruptive era. No doubt SRK has to learn how to deal with millenial viewers as well.
The more pertinent question for those putting their money on the mouths of these gentlemen is on the return on capital employed. SRK is not listed in the markets. Infosys is. Its share is trading below Rs 1,000. In an unusual vote of confidence, Angel Broking put a "Buy" on its stock one day ahead of results, guided by fundamentals, possibly sensing a long-term buying opportunity in a market headed for short-term blues. Infosys has hired 3,967 people as lateral hires and 601 overall and brought down attrition levels as well in the latest quarter. It has also won $800 million worth of business from large clients. Infosys stock's price-to-earnings ratio at 15 is decent by any standards for well-governed companies worldwide.
It is not exactly the Raees of the markets anymore, but still has its heart in the futuristic technologies and trends. Admirers will just hope that those with the hearts in the right place win. After all, Dilwale Dulhaniya Le Jaayenge is a Bollywood maxim that made SRK a legend.
(The author is a senior journalist. He tweets as @madversity)
Published Date: Apr 13, 2017 11:01 am | Updated Date: Apr 13, 2017 11:17 am