Cognizant’s move to hire Ravi Kumar S as President was driven by the board, possibly in reaction to the IT firm’s underperformance compared to its peers, a note released by Moshe Katri of Wedbush Securities on October 18 said.
Katri, who has been covering IT services and payments for over two decades, had told Moneycontrol in August that the company’s middling performance in the last few years warranted action from the board.
On October 17, Nasdaq-listed Cognizant named two new executives to its leadership team—Ravi Kumar S as President, Cognizant Americas and Prasad Sankaran as the new head of the Software & Platform Engineering practice area. While Kumar was previously with Infosys where he was President, Sankaran joined Cognizant from Bain & Company.
Of the two, Kumar’s appointment was particularly noteworthy, as multiple sources told Moneycontrol that this could be a pathway to him eventually becoming CEO, succeeding incumbent Brian Humphries.
This is something that Katri alluded to in his note as well.
“We are assuming the Board is factoring a transition phase, as Mr Kumar at his new role (which was either newly-created or hasn’t been filled for quite some time) goes through a “learning curve”, and then, ultimately, becomes Cognizant CEO, next year or by 2024, once Mr. Humphries completed his 5-year term as company CEO,” the note stated, adding that the reactions from a number of former Cognizant executives were positive.
The note further said that this seemed a board-driven action, possibly in reaction to the company’s multi-year underperformance relative to its Tier-I peers. Further, bringing on board a 20-year veteran with extensive knowledge in managing staff, clients and personnel was a smart move and that unlike prior senior nominations at Cognizant, Ravi Kumar brings know-how in building growth businesses, it added.
Katri’s comments come months after he called out the Cognizant board for not exercising its fiduciary duty.
Following the company’s results last quarter, a note by Wedbush at the time had said that the Board was bound to act on the issue of underperformance in growth rates as compared to its peers such as TCS, Infosys and Accenture, which would lead to changes in leadership.
The latest note said, "Ultimately, the company's board is bound to act upon these issues, leading to leadership changes at the helm...At its current form, Cognizant is probably one of the most under-appreciated platform in the sector. We hope Mr. Kumar’s nomination may have started the process we called for."
Katri, who serves as Managing Director of Equity Research at Wedbush Securities, has an Outperform rating on Cognizant despite his concerns as he believes it is a very valuable, underutilised asset that can be revitalised under the right circumstances.
For the longest time, Cognizant was the barometer of growth for the Indian IT industry, but in the last three years, it has been besieged by a host of issues, losing market share in key accounts, even as attrition has been soaring at the executive and junior levels.
A majority of the Nasdaq-listed company’s employees are based in India. Cognizant pared its revenue growth guidance for the full year to 8.5-9.5 percent, signalling tough times ahead.
At the time of his exit from Infosys, Ravi Kumar led the Infosys Global Services Organization across all industry segments and drove digital transformation, consulting, traditional technology, engineering, data and analytics, cloud and infra services. He was previously the company’s Deputy COO and was tipped to be the COO, but the post was scrapped after UB Pravin Rao retired from the role.
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