Infosys slips as investor euphoria on Murthy's return cools

Moneycontrol Bureau

Infosys shares declined more than 1 percent on Tuesday as investor euphoria over founder Narayana Murthy's return as executive chairman cooled. The stock had gained as much as 8 percent on Monday as the street gave a big thumbs up to the software services exporter's announcement. Infosys has gone through a difficult restructuring phase in the last two years and the once bellwether now regularly misses its earnings forecasts and its guidance for this year is way behind what the industry body NASSCOM has forecast. While most analysts have welcomed Murthy's appointment, many agree that despite his return the road to recovery is still a difficult one. Infosys under Narayana Murthy had a history of bettering its quarterly and full year guidance. However, citing a challenging business environment amid the global economic downturn, the Bangalore-based company stopped issuing quarterly guidance last year. It has guided for a 6-10 percent revenue growth this year (FY14), even as other companies like Tata Consultancy Services expects to outperform NASSCOM's guidance of 12-14 percent. According to Barclays Research, Infosys clocked a compounded revenue growth of 65 percent and net profit growth of 64 percent between 1981-2002, with Narayana Murthy at the helm. Under the current CEO SD Shibulal, the company has clocked a compounded revenue growth of 21 percent and profit growth of 25 percent. Slower growth along with a high employee cost base has also impacted Infosys' EBIT (earnings before interest, taxes) margins, which have declined 400 bps in the last 5 years, it says. During the same period, Tata Consultancy Services and HCL Tech have seen their margins improve 300 bps and 200 bps respectively, Barclays adds. Some analysts are also curious over Murthy's son Rohan's appointment as executive assistant, given that the company and Murthy himself till not so long ago had stressed that none of the promoters' family members would be involved in the company affairs. Although Murthy has maintained that Rohan is only there to help him, it also raises questions over the current mid and senior leadership in the company. Shibulal, the current CEO, MD is the last among the founding members, and will retire in 2015. Whether Rohan Murthy will play a wider role then or will some others waiting in the wings like BG Srinivas, the current head of Europe, Ashok Vemuri, head of Americas and V Balakrishnan, head of Infosys BPO, get promoted is also uncertain. "It is vital for Infosys to come out with a definite succession plan significantly before the event to manage internal transition and allay investor concerns," Barclays says.  Murthy's return as the head will surely calm restless nerves on the street, but the road ahead will certainly not be a cake walk and investors will be watching every step. At 10:29 hrs, Infosys shares were down 1 percent at Rs 2,487.95 on NSE. The stock has risen 8 percent over the last two sessions. Also Read: Idea Cellular gains 2% on talks to sell tower biz to Axiata Nachiket Kelkar
nachiket.kelkar@network18online.com