Salil Parekh has been chief executive and managing director of Infosys since January 2018
India’s second largest software firm Infosys said on Sunday that its board has reappointed Salil Parekh as managing director and chief executive officer for five more years starting July, reposing trust in a leader who has turned around the company ever since he took over in January 2018.
In a filing to exchanges on May 22, the company said, “The board in a meeting on May 21 approved the reappointment of Parekh subject to the approval of shareholders.”
Earlier, Parekh, 58, was a member of the group executive board at Capgemini, where he held several leadership posts for 25 years.
ESOPs to retain top talent
The company has also rolled out performance-linked stock units to nearly 100 top executives amid rising attrition.
The board has approved a grant of 104,000 shares to six key management personnel and another 375,760 shares to 88 other senior executives in a bid to retain leadership amid a war for tech talent. These performance stock units will be granted under the Infosys Expanded Stock Ownership Plan 2019, and will vest over three years on achievement of milestones, in line with the plan approved by shareholders.
Infosys under Parekh
When Parekh took charge as CEO on January 2, 2018, co-founder and chairman Nandan Nilekani described him as the right person to lead Infosys.
Four years on, it appears Nilekani’s faith has paid off, as Parekh restored stability, growth and confidence in a company that was badly bruised due to conflicts between founder NR Narayana Murthy and then CEO Vishal Sikka. The latter was under fire from the former over issues related to corporate governance and profligacy, as these rankled founders who always took pride in their humble origins and transparency.
Personality wise, while Sikka was a tech visionary who often dazzled stakeholders with his futuristic ideas, Parekh is more understated, prefers to keep his head down, win deals and execute.
The Nilekani-Parekh combo
Unlike Sikka, what also helped Parekh was the complete backing of Nilekani, who continues to serve on the board as chairman and is learnt to take an active interest in the business. Nilekani has also publicly praised Parekh in the past, complimenting him for “doing a terrific job” of reinventing Infosys and making it resilient.
In his first meeting with analysts after taking charge, Parekh said he needed 3 years to transform Infosys. The first year in fiscal 2019 will be to stabilize, the second year to build momentum and the third to accelerate where it can have more and more share of its clients’ relevance.
The Covid crisis helped the company as it pivoted to a delivery model where a majority of its employees started working from home and it benefited from clients migrating to the cloud and stepping up digital investments.
During this period, Infosys outperformed its peers for many quarters, its share of revenues from digital has more than doubled and it won large deals from companies such as Vanguard, Daimler and Rolls Royce. The Infosys stock has risen by over 183% since he took charge.
It clocked a growth rate of 19.7% in fiscal year 2021-22, its highest annual growth rate in a decade as it saw robust demand for its services. This is also the third year in a row that it grew faster than larger rival TCS.
“As we look ahead, we have given a growth guidance of 13-15% which is very strong guidance as we start the year. We see our pipeline in good shape, a very good demand environment and we have recruited in the fourth quarter 22,000 net new employees. And that, among other things, gives us very strong confidence for the future,” Parekh said in an interview to Moneycontrol last month.
While the Nilekani-Parekh combination has worked very well for Infosys in the last four years, the coming year is fraught with risks in the light of the continuing Ukraine-Russia war and fears of a recession in the US, which is Infosys’ largest market.
Brokerage firm JP Morgan recently downgraded Indian IT services sector to ‘underweight’ and cut the target price of multiples by 10-20 percent.
The brokerage firm says the Indian IT growth was accelerating till the third quarter of 2022 and has begun to slow down from the fourth quarter, which is likely to worsen into FY23 from tougher comps, supply issues and eventually a worsening macro. “With peak sector growth behind, growth deceleration should continue to weigh on sector multiples”, it said in a note.
However, it said Infosys is its top pick among IT services firms. “We would BUY the stock on weakness for its structural strengths and see limited earnings risk from this level given its guidance track record. It stays the sector bellwether and the best way to play the current tech spending super-cycle, in our view,” the report said.
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