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18
August 2017
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Sikka(The Total
Investment & Insurance Solutions)
Following
the resignation of Vishal Sikka as Infosys’ Managing Director and Chief
Executive (CEO), Emkay Global Financial Services Ltd (Emkay) has cut its rating
on the company to 'reduce' from 'hold' while revising target price by 7.1% to
Rs910. The Total Investment &
Insurance Solutions
In its
advisory, Emkay says, "Vishal Sikka's resignation from Infosys at this
crucial stage of business transformation is a significant dent given the differentiated
path the CEO led the company in last three years. We believe this is severe
dent in brand reputation, client conversation, investor confidence, employee
morale, business transformation, which would affect its financial performance
in the short-to-medium term. Thus we believe that stock may command lower
valuation given the absence of positive triggers and incremental uncertainty in
coming period."
Commenting
on the developments in Infosys, Kaustubh Belapurkar, Director - Fund Research,
Morningstar, says, "Domestic fund managers have been pruning exposure to
the technology sector over the last year, due to tepid growth seen in the
industry due to global headwinds as well as Rupee strength. Technology sector
allocation across all funds on an aggregate basis has come down dramatically to
8% from 9.75% over the last 1 year. Infosys has been the favoured stock
from the tech space, with about 40% of the mutual fund (MF) industry's overall
Technology sector allocations being made in Infosys."
(Source:
Morningstar)
According to
Emkay, Mr Sikka's thought leadership on technology evolvement was well regarded
and had helped Infosys to create a robust 'new services and software' that
accounts for 50% of the incremental revenues over FY2015-2017. 'New
Services and Software' accounts for 10% of total revenues and stood at $1
billion in size today all of these were new initiatives and revenue stream
created under leadership of Mr Sikka. The
Total Investment & Insurance Solutions
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| Infosys (The Total Investment & Insurance Solutions) |
Clients
under the macro business uncertainty would prefer for more certain business
partners that provides continuity of thought process, Emkay says, adding,
"We believe this event may benefit competitors such as TCS and Cognizant
at least in short term."
However, it
says, "The bigger dilemma (for Infosys) remains in terms of getting a
replacement as there are not many choices internally, given several key
personnel exits in last three years and equally challenge to find an external
candidate given the way things have been."
Mr Sikka has
been appointed as Executive Vice Chairman of Infosys till March 2018, while UB
Pravin Rao has been appointed interim CEO and MD reporting to Mr Sikka under
the overall supervision and control of the Company's Board. The Total Investment & Insurance
Solutions
In his
resignation, Mr Sikka has highlighted concern over sickening repetition of
allegations around Panaya acquisitions, CFO compensation despite repeated
clarification post multiple investigations by third party consultants.
"However," Emkay says, "we believe putting risk to three years
of hard work on these personal challenges are not sufficient grounds and is
severe blow to the company."
Infosys
closed Friday 9.6% down at Rs923 on the BSE, while the benchmark Sensex ended
the day marginally lower at 31,524.The
Total Investment & Insurance Solutions
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