Infosys turnaround bid likely to be weighed down by staff exodus

An exodus of senior executives and staff at India's second largest IT outsourcing firm, Infosys Ltd, could hamper efforts to win lucrative contracts in the United States and Europe, and weigh on its profit growth outlook for this year.

Nearly a fifth of the workforce had left the company in the quarter ended December following the return from retirement of founder N.R. Narayana Murthy in June to turn around the company after a string of disappointing results. So far, nine senior executives have left.

Infosys has the highest attrition rate among India's top-three IT outsourcing firms. The senior management changes make Infosys "highly susceptible" to miss out on an expected pick-up in growth in India's $100 billion software services and outsourcing industry, said broker Ambit Capital.

On Friday, Infosys said it started looking for a new CEO in preparation for the retirement of S.D. Shibulal early next year, and appointed advisory firm Egon Zehnder to assist a committee in identifying external candidates.

All four of the company's CEOs are its original founders, a structure that investors have blamed for the loss of market share in recent years.

"Absolutely, the high staff turnover creates concerns about the growth outlook," said Walter Rossini, a Milan-based portfolio manager for Gestielle India, which manages Indian stocks worth about $200 million, including shares in Infosys.

"It's creating uncertainty about its strategy. Who will help Murthy implement his strategy?"

Murthy has vowed to take tough decisions to boost growth and restore Infosys's fortunes over the next three years, refocusing the company on winning large outsourcing contracts.

India's outsourcing sector relies on U.S. and European companies for about three quarters of its revenue.

Lagging Rivals

Infosys is expected to post a modest 18 percent rise in January-March net profit on Tuesday, lagging sector leader Tata Consultancy Services Ltd, which is expected to say its quarterly profit jumped almost 44 percent.

For the current year to end-March 2015, most analysts polled by Reuters expect Infosys to forecast revenue growth of 8-10 percent, underperforming the IT outsourcing sector's export growth rate of 13-15 percent.

Murthy said last month revenue for the current year could be at the lower end of the company's 11.5 to 12 percent growth projection.

R.K. Gupta, managing director at Mumbai-based Taurus Asset Management, which owns Infosys shares, said Shibulal's departure next year could force Infosys to bring in outside expertise. "I think new blood and new ideas is needed ... that can sometimes only come from a person who has a broader view of the industry," he said. "When you spend a long time with one company you have loyalty, but sometimes your ideas get old."

© Thomson Reuters 2014