Infosys falls on management exits; brokerages raise concern

Moneycontrol Bureau

Shares of Infosys fall over 1 percent intraday on Monday as top management exodus continues in the country’s largest IT company. On Friday after market hours, Infosys announced resignation of its director V Balakrishnan. This is the eight top level exit at Infosys since June. Balakrishnan told CNBC-TV18 that his exit has nothing to do with Narayana Murthy's return.

Meanwhile, chairman Narayana Murthy has said that there is a strong management structure in place and younger talent will be given chance to grow. Addressing concerns he said, “Balakrishnan exit unfortunate but we have to move on. There is no issue around management structure and journey ahead will be exciting. Infosys is at a precipice of change.”

Brokerages have raised concerns about the exit. Though Kotak has a buy rating on the stock it  believe that the impact of exits could be felt in the medium term. It says in a report, "Returns in this stock may be capped, especially after strong recent performance and increasing concerns on efficacy of reorganisation. Our positive stance was led by improving demand environment that will give Infosys breathing space to fix internal challenges, likely improvement in execution that will help catch up in revenues and also improve profitability.”

Antique retains hold rating on the stock. It explains that while concerns on recent management exits and impact on revenues remain, the company may surprise on the margin front. “Management recently has taken several initiatives to cut cost at onsite. Infosys earnings are sensitive to margins. A one percent increase/ decrease in margins impact earnings by 3-4 percent. Its EBIT margins have declined by 500bps over last two years and ability to recoup even 100bs -150bps could lead to earnings upgrade and rerating,” Antique adds.

At 09:39 hrs Infosys was quoting at Rs 3,498.55, down Rs 53.75, or 1.51 percent on the BSE.