Infosys announces stock incentives for over 6,000 mid-level employees

Salil Parekh, its CEO, would be granted performance-based incentives in the form of RSU worth Rs 10 crore, which was opposed by close to 21 percent of public shareholders and came under scrutiny in light of the recent development
Infosys on October 24 announced stock incentive option to its mid-level 6,949 eligible employees in the form of restricted stock units (RSU).
"This is to inform that 2,298,020 stock incentives in the form of RSUs were granted to 6,949 mid-level eligible employees of the company/subsidiary companies under the 2015 Stock Incentive Compensation Plan," the company said in a statement to the stock exchanges.
“The date of grant for these stock incentives is November 1, in line with the company’s compensation calendar timelines. The exercise price will be par value of shares. These RSUs will generally vest in four equal instalments,” the company added.
In April, Infosys’ board had approved performance-based stock ownership programme for employees. Close to five crore shares were allocated to incentivise employees.
Salil Parekh, its CEO, would be granted performance-based incentives in the form of RSU worth Rs 10 crore, which was opposed by close to 21 percent of public shareholders and came under scrutiny in light of the recent development.
On October 24, Infosys also informed the stock exchanges that the SEC has started an investigation based on the complaint by the whistleblowers. The latter have bolstered their claim with emails and voice recordings that show that Parekh and CFO Nilanjan Roy violated corporate governance norms and window-dressed accounts.

Wipro may be lagging on growth but is managing its receivables better

The story at Wipro Ltd in recent years has been a series of false starts. Even as revenue growth for its larger peers, Tata Consultancy Services Ltd (TCS) and Infosys Ltd, accelerated, Wipro lagged. But one metric where the company is scoring is cash conversion.

The proportion of Ebitda (earnings before interest, tax, depreciation and amortization) that converted into operating cash flow stood at 98% in fiscal year 2019, the highest among large IT companies. Wipro maintains this lead with cash flows to Ebitda staying at 95% in the 12 months ended June 2019, showed an analysis by Nomura Financial Advisory and Securities (India) Pvt. Ltd.

Wipro’s growth in operating cash flow and free cash flow exceeded Ebitda growth in 12 months to June. Free cash flow adjusts for capital expenditure as well, apart from cash operating expenses.

Importantly, this is not a recent phenomenon. Cash flow growth is far superior at the company even using three-year annual average growth rates. “Over the last three years, cash conversion has been stable for Infosys/TCS, deteriorated at HCL Technologies Ltd and improved for Wipro," analysts at Nomura India said in a note.

What explains the variation in performance is better receivables management. Comparatively, the receivables position increased at other large IT companies, with Infosys seeing material deterioration in recent quarters.

The variation in growth rates may be part of the reason. Constant currency revenue growth year-on-year remains in mid-single digits at Wipro, while its larger peers are growing in double digits. “Typically, a growth-focused company may give some leeway to customers on payment terms," said an analyst on condition of anonymity. Even so, as the analyst added, Wipro is doing a decent job in getting money quickly from customers.

Of course, all of this is but a silver lining on the dark cloud of poor growth. Most analysts remain sceptical about Wipro’s growth outlook. The September quarter revenue growth guidance indicates no major improvement. The pressure on legacy business is more pronounced at Wipro than at other large companies, showed an analysis by HDFC Securities Institutional Research.

This is reflected in the valuation discount vis-à-vis other large peers. “TCS and Infosys trade at premium valuations due to revenue predictability and stable performance," Kotak Institutional Equities said in the June quarter results review note, referring to the valuation gap in IT stocks. For Wipro’s returns to pick up, revenue growth will have to inch up as well.