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Infosys may see more top-level exits, say brokerages

Saturday, 14 June 2014 - 7:00am IST | Place: Mumbai | Agency: dna

Raise concerns over new CEO's product background, but feel he may attract external talent; see co getting aggressive on acquisitions

A day after Infosys announced Vishal Sikka as its new CEO, several brokerages on Friday raised concerns over the new chief's product background, and hinted at more senior-level exits.

However, some also argued that Sikka's product background could turn out to be a great growth opportunity for the IT major.

"An outsider as the CEO could lead to further attrition at the senior management level, which could be a near-term concern," HDFC Securities said in a report.

Infosys has already been plagued with higher attrition. The company faced a dozen high-profile exits post N R Narayana Murthy's return as the executive chairman last June.

"However, Murthy stepping down as the executive chairman would eliminate any possibility of dual power centre in the company," the report said.

To stem top management exits, Infosys has elevated 12 leaders to executive vice-president position with additional responsibilities.

"In our view, this should help reduce the pace of exits at Infosys, which have been unnerving in the recent times," Emkay Global Financial said.

Sikka, 47, who holds doctorate in computer science from Stanford University, is most well known for developing HANA product for German tech giant SAP. "Sikka's experience at SAP will help Infosys in its Product, Platforms and Solutions (PPS) business and help to expand its SMAC (social, mobile, analytics and cloud) offerings," Kotak Institutional Securities said in its report.

These business segments could become very relevant portions of the business in coming years, it said, adding. "However, due care has to be taken to ensure the focus is not diverted from the traditional IT services business, which accounts for about 94% of Infosys's revenues."

Many brokerages argued that Sikka's strong product technology background not necessarily means de-focus from services.

The new CEO in conference call on Thursday stressed there would be no disruption in the existing business model, but there would be more focus on driving automation in the commoditised areas of the business.

"Moreover, we believe decisions by any CEO are always circumscribed by the board's mandate and constraints of the existing business model. So investor concerns of a radical shift to a new business model are uncalled for," Espirito Santo Investment Bank said in a note.

"In traditional services, driving greater efficiency and automation will clearly be key. Client overlap between Infosys and SAP implies opportunity for Sikka, of a smoother discussion around evolving relationships and how they can be strengthened," Motilal Oswal Securities said.

Many analysts even believe that Sikka's strong product background could help the company to drive some new revenue streams. The role of a CEO is to identify structural shifts in the market and tailor the company's strategy to capture the opportunity. "His ability to read the market and identify potential for an offering is clearly demonstrated in his role in the development of SAP HANA," Kotak said. The report said SAP experience has helped Sikka to understand the constructs of developing a partner ecosystem.

"This is extremely important as partnerships, an area in which Infosys has lagged, will become critical for success in the legacy services and SMAC era," it said.

Also, Sikka's strong pedigree will improve boardroom access to Infosys's leadership team. His reputation as a respected professional could possibly make it easier to attract external talent.

Having UB Pravin Rao assist him as chief operating officer will also help in Sikka's transition, believe some brokerages. The company elevated Rao as the new COO along with other officials. Rao has around 28 years of experience in the company, having served various roles like head of infrastructure management services, delivery head for Europe, and head of retail, consumer packaged goods, logistics and life sciences.

Infosys is also likely to become more aggressive for inorganic growth under Sikka's leadership. "With a cash chest of $5 billion, Sikka has reasonable room to manoeuvre and acquire companies that could add capabilities to build unique services offerings. While this should help camouflage near term challenges to growth, his strong client connects should also help drive more deal flows," Espirito santo said.

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