Infosys drops on CFO exit

Venkatesh Ganesh Bengaluru | Updated on August 20, 2018 Published on August 20, 2018

M D Ranganath   -  BUSINESS LINE

Unlikely to make much impact on the company’s performance, say analysts

The shares of IT major Infosys closed 3.2 per cent lower at ₹1,385.20 on Monday on the BSE, reacting to the Saturday decision of its Chief Financial Officer MD Ranganath to step down from the company.

Ranganath, who took over as CFO in October 2015 and spent 18 years in India’s second-largest software exporter, will exit the company on November 16, said Infosys.

Analysts believe that his exit will not make much impact on the company’s performance. “His exit is a loss to the company. And is a negative in the short term. However, the way Infosys has managed the changes at the CEO level and other senior management exits, we are confident that Ranga’s exit will not have any material impact on Infosys’ medium- to long-term performance,” said Urmil Shah, Research Analyst and Associate Vice-President, IDBI Capital.

Ranganath was instrumental in not letting margins slide in a significant manner and analysts consider that in the last three years doing so was an achievement. This, they attribute was due to change in the way outsourcing has changed, in addition to tougher scrutiny on H1-B visas and severe competition for outsourcing projects. Also, Infosys witnessed a bitter spat between its co-founders and Vishal Sikka on corporate governance lapses, which eventually led to the latter resigning. Additionally, there were senior management changes and Infosys’ current CEO Salil Parekh has outlined a new strategy since taking over in January this year.

‘Good margin profile’

“He did play a key role in making sure that Infosys maintained good margin profile and financial performance in the last three years when the company saw multiple senior management changes, but going forward we see this development in line with the new CEO’s objectives,” said Shah.

During Ranganath’s tenure, operating margins came down to 23.7 per cent in the June quarter from 25 per cent.

This is the second CFO-level exit seen in Infosys since 2015 when Rajiv Bansal quit owing to differences with the management over Panaya acquisition and even has a case under arbitration over a part of his severance package.

“The (recen) rally hardly leaves stomach for news of continued rebuilding of the top leadership and the ensuing distraction to business. Hence, we would expect the stock to lose some of the steam that had been built up in the recent past,” said Motilal Oswal which maintained a buy rating with a target price of ₹1,600.

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Published on August 20, 2018
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