Nagavara Ramarao Narayana Murthy retired from Infosys Ltd (INFY) in August 2011. Since then Infosys has been falling from its elevated position as the premier information technology company over the past few decades.
Murthy, who was the co-founder of the company, was chiefly credited with the company’s success in new growth areas and new business opportunities. Subsequent to his stepping down from all the executive positions, it turned out to be difficult for both the insiders and those tracking the firm from outside to keep up with the same high level of performance. After Murthy left, challenges were faced in multiple areas. Due to economic uncertainty, the company failed to procure new contracts. In addition, employee dissatisfaction also became a concern. Further, the company faced tough competition. from peers and also faced difficulties in proper management of the company’s growing client base.
This 66 year old gentleman was, therefore, reappointed as Executive Chairman of the Board and Additional Director for a period of five years commencing on June 1, 2013.
Mr. S Gopalakrishnan would be re-designated Executive Vice Chairman and Mr. S D Shibulal would continue to be the Managing Director and CEO. With this, Mr. K V Kamath would step down from his position as Chairman of the Board and will assume the responsibilities of the position of Lead Independent Director.
The reshuffle also includes the appointment of Narayana Murthy's son, Rohan Murthy, who has a Ph.D. in Computer Science from Harvard University. He will be a member of the chairman's office that Narayan Murthy plans to set up. This will be the first time that a family member is being inducted to such a high level position. Both Narayana Murthy and his son Mr. Rohan Murty have requested to be paid just a token remuneration of Rupee One per year.
Infosys has been facing difficult times since 2012, as it consecutively reported weak earnings results quarter over quarter. Recently, in the last quarter, the company’s results dipped both sequentially and year-over-year. Fourth-quarter 2013 financial results show earnings per ADS from continuing operations of 78 cents down 3.7% year over year and 2.6% sequentially. The company recorded an operating profit of $457 million compared to $528 million in the prior-year period, reflecting a decline of 13.8% year over year. Operating margin also contracted 623 basis points year over year to 23.6% from 29.8% in the comparable prior-year quarter. In such a situation, the company’s full-year guidance was a matter of concern, going forward.
Infosys currently has a Zacks Rank #3 (Hold) on the stock. Other companies operating in the same sector worth considering include Unisys Corporation (UIS), while Accenture PLC (ACN) and iSoftStone Holdings Limited. (ISS) have a Zacks Rank #2 (Buy).
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