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Last Updated : Aug 20, 2018 10:35 AM IST | Source: Moneycontrol.com

Infosys up about 40% so far in 2018. How will CFO exit impact the stock?

2018 has been a good year for Infosys. The stock has risen by about 40 percent in the same period and narrowed discount with TCS.

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Some brokerage houses are calling the exit of Chief Financial Officer (CFO) as a disappointing development for Infosys, while some are suggesting that the outsider versus insider debate will get ignited again. Narayana Murthy termed CFO's exit as an irreplaceable loss for Infosys.

2018 has been a good year for Infosys. The stock has risen by about 40 percent in the same period and narrowed discount with TCS.

Infosys Board accepted the resignation of CFO MD Ranganath. This means that Infosys is braced for its 4th CFO in less than five years. They have not announced a replacement, and the hunt for the new CFO will commence immediately. Ranga will continue till November 16, 2018.

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The recovery in the stock price was largely due to the stability as well as strong management commentary, but any instability could dent investor confidence again, suggest experts.

“The string of exits at the senior level continues unabated at Infosys. This is disconcerting, compounded by the fact that the spike in attrition of the last quarter (20.6 percent) also saw high performers exit,” Motilal Oswal said in a report.

“Infosys stock rallied by 38 percent CYTD and 26 percent FTYD, leaving little room to absorb more instability. Hence we expect the stock to lose some of the built-up steam in the near-future,” he said. The brokerage firm has a buy recommendation on the stock with a target of Rs 1,600.

During long tenure of 18 years in Infosys, Ranga has been a part of the Infosys leadership team and has played several leadership roles in the areas of consulting, finance, strategy, risk management and M&A and has worked closely with the board and its committees in formulating and executing strategic priorities for the company.

“Since his appointment as CFO, Infosys EBIT margins of 25 percent in FY16 were down 70 bps to 24.3 percent in FY18. The guidance is for EBIT margin of 22-24 percent in FY19. This, however, was amid 4.7% / 2.7% decline in per-capita realization in FY16/FY17, which clawed back to +1.5% in FY18,” said the Motilal Oswal report.

“Also, Cash generation remained strong - OCF margin in last three years was 17.2 percent, OCF to EBITDA was 63 percent. FCF margin was 13 percent and FCF/PAT was 60 percent,” he said.

The global brokerage firm, JPMorgan said it appears that the company is struggling to keep its top management flock together.

“Key exit at the top level is a disappointing development. Outsider vs Insider debate tends to get ignited,” it said.

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First Published on Aug 20, 2018 10:35 am
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