Last Updated : Dec 04, 2017 04:51 PM IST | Source:

Should minority shareholders be excited about the new Infosys boss?

While the near-term guidance is still muted and lower than the industry, the management change and payout policy should limit downside in the stock, making it a candidate to accumulate on weakness.

Madhuchanda Dey
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Todays L/H

The end to the leadership crisis at Infosys may be in sight with Salil Satish Parekh’s appointment as the new CEO and MD. While the fire may have been largely put out, it is a challenging role nevertheless for Parekh, who was instrumental in building Capgemini’s India operations. For minority shareholders, the appointment will provide a floor for the stock post the end of the buyback programme on December 14. With a decent dividend yield, is the stock ripe for bottom fishing?

The key questions uppermost in the minds of investors are:

Does Parekh have the right credentials?

He certainly does. Parekh comes from a larger IT service company with revenues of about USD 15 billion and 190,000 employees. Roughly 40 percent of the headcount is in the Indian operations.

He built the offshore delivery capability at Capgemini and grew the firm’s India team from 800 people to 80,000. He also helped Capgemini compete with Indian IT service providers on costs.

Besides meeting delivery commitments, Parekh’s strength also lay in his ability to integrate acquisitions. The biggest was the 35,000-member team of iGATE. Others included Kanbay, a US firm with delivery centres in India, the captive unit of Unilever in Chennai, and Thesys Technologies, a banking software services firm.

Parekh has over 25 years of experience in IT/consulting services in various areas beginning with E&Y consulting and thereafter in Capgemini. In his most recent role, he was a member of Capgemini’s Group executive board, handling several portfolios like application services in North America, the UK and APAC, cloud infra services, and technology and engineering services.

Parekh was instrumental in strategizing and executing the company’s cloud business, driving growth and turnaround of North America business, and last but not the least setting up and seamlessly scaling the offshore development center in India.

Could there be a repeat of the Sikka episode?

Highly unlikely. Parekh’s selection has the support of both the board and the founders and he will be given a reasonable degree of freedom to make Infosys ‘future ready’ while not compromising the overall interest and control of the founders.

In Parekh, the founders may have found the right blend of an entrepreneur with ambition and a professional manager with execution skills. He also understands the culture of an India-led organisation, having spent most of his work life in the country. He is going to be based out of Bangalore, which will keep the power centre in India (close to the founders).

Can Parekh take Infosys to the next level in a disruptive environment?

Perhaps. As a part of the core team at Capgemini, Parekh has also seen the market shift towards newer technologies and digital. As the CEO of an IT services business, it is key to identify structural shifts in the technology landscape, take bets early on and back it with conviction. The strong client-connect and boardroom access at client organizations are the other aspects that the CEO brings to the organisation. Parekh will have to prove his mettle in both these areas.

What can shareholders rejoice about?

The end of an uncertainty itself is good news.

The weekend announcement of US reducing its corporate taxes from 35 percent to 20 percent could ease cost pressures and increase IT spending on the margin.

Finally, Infosys has decided to pay its shareholders up to 50 percent of post-tax profits and up to 70 percent of free cash flow as dividends. The ongoing Rs 13,000 crore buyback is a part of this exercise. Going forward, the payout policy should ensure a decent dividend yield for the stock.

While the near-term guidance is still muted and lower than the industry, the management change and payout policy should limit downside in the stock, making it a candidate to accumulate on weakness.


For more research articles, visit our Moneycontrol Research Page.

First Published on Dec 4, 2017 04:23 pm
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