TCS’ N Chandrasekaran is in pole position in terms of stock returns among the current batch of chief executives of IT companies – a sector led by charismatic chief executives who have captured public imagination and which contributes almost 15 per cent to the Sensex (as of August 17).
But, Chandrasekaran has to outrun N R Narayana Murthy, who emerges as the top performer in an analysis of stock returns and streaks ahead of others by a wide margin.
In Chandrasekaran’s tenure, the TCS stock price has grown 28 per cent (compound annual growth rate or CAGR) while the Sensex returned 1 per cent. Infosys stock price with Murthy at the helm, though, grew 92 per cent; for the same period the Sensex grew (CAGR) at 5 per cent.
None of the IT chief executives show such a score card. He is followed closely by his successor Nandan Nilekani. During his tenure, the Infosys stock grew from Rs 418 per share to Rs 1,902.9 per share, an increase of 355 per cent.
Even the current leadership at Infosys is nowhere close to what Murthy and Nilekani have managed. Under the current CEO S Shibulal’s tenure the company’s stock has improved just about 9.6 per cent.
Analysts add a disclaimer by saying that that the macro environment during the tenure of CEOs such as Murthy helped in a big way. The stock markets witnessed one of the best bull runs and business growth was at its peak.
The Indian IT services industry was growing more than 30 per cent and individual companies recorded CAGR of 60-70 per cent.
Sonam Udasi, head of research at IDBI Capital agrees, but says the leadership’s ability to drive the team played a critical differentiator. “All these companies are competing for growth in the same environment.
So, if a company does better or worse it is because of the leadership driving the company and their ability to drive the team towards growth.
For instance, Infosys was always considered to be a benchmark. But with quarter after quarter of missing the guidance, it seems to need a new thinking/strategy, which can only come from its top level,” added Udasi.
|HOW CEOs SCORE IN TERMS OF STOCK RETURNS|
|Compound annual growth rate (%)*|
|Price||Sensex||Net Sales||Net Profit|
|* Narayana Murthy||Listing to Feb 2002||35,324.58||51.10||91.98||4.69||78.84||83.00|
|Nandan Nilekani||March 2002 to June 22, 2007||355.23||306.12||35.41||32.35||39.78||36.77|
|Kris Gopalakrishnan||June 2007 to August 2011||16.45||11.57||3.88||2.78||18.61||15.30|
|S Shibulal||Aug 2011 till date||9.63||10.56||9.63||10.56||22.66||21.90|
|Vivek Paul||Aug 1999 to June 29, 2005||124.36||56.74||14.42||7.78||35.81||70.59|
|Girish Paranjape||April 2008 to Jan 2011||71.82||17.15||19.77||5.42||19.77||15.96|
|Suresh Vaswani||April 2008 to Jan 2011||71.82||17.15||19.77||5.42||19.77||15.96|
|T K Kurien||Feb 2011 till date||-20.15||-3.97||-13.93||-2.66||19.81||6.30|
|S Ramadorai||Listing to Oct 2009||150.87||236.58||20.20||27.47||207.24||258.78|
|* N Chandrasekaran||Oct 2009 till date||108.44||4.16||27.74||1.37||27.60||21.81|
|Vineet Nayar||October 2007 till date||85.41||3.21||13.14||0.36||27.97||12.85|
|*For the given period; Price returns are calculated according to the adjusted prices; Source: Bloomberg, Capitaline;
Data compiled by BS Research Bureau
Murthy, co-founder and CEO of Infosys, made the company public in February 1993, and led it till March 2002. Under his leadership, Infosys stock, based on the adjusted prices, grew in multiples. The company’s stock price during listing, after adjusted price, was Rs 1 per share, which touched Rs 418 when he moved away from the chief executive’s role in 2002. Analysts say this was the golden period for Infosys with CAGR of just over 78 per cent. One has to keep in mind, though, that Infosys was one of the earliest IT IPOs in India and would have enjoyed better run than other stocks.
Among the chief executives of the top four IT services firm now, TCS’ N Chandrasekaran has defied a tough macro environment and given high returns in terms of revenue and profitability. The market has recognised that: since “Chandra” took over as the CEO almost two-and-a-half years ago, the TCS stock price has zoomed 108 per cent. Under his tenure, the company has also managed to touch revenue at $10 billion from $6 billion when he took over. The other CEO who has managed to add value to stock price is Vineet Nayar of HCL Technologies.
Experts say the stock performance can reflect an individual CEO’s drive. In case of HCL, Nayar’s play in the infrastructure management services (IMS) space and the acquisition of Axon, the company it acquired in 2008 with expertise in enterprise solutions like SAP, is having an impact. Similarly, some of the bets that TCS took – such as continued investment in Diligenta, its UK subsidiary that was created to provide BPO services to life and pension industry in UK, acquisition of Citibank’s banks business process outsourcing firm, Citi Global Services, are paying off.
R Suresh, managing director at Stanton Chase, an executive search firm, says leaders whose statements are considered the gospel truth get enormous backing by the stock. “Even if they make a small statement on growth, it is enough to send the stock to rally around,” says Suresh.
This is evident in the case of Infosys, TCS and Wipro. In recent times, this has been true for TCS. Though the company does not provide guidance, the management comments have rallied the stock.
“Leadership does matter as it drives the company and its performance. For example, the case of Nayar taking the call on focusing on IMS deals rather than time and material-based projects. These decisions stem from the top. Also leadership plays a critical role when it comes to acquisitions as has been the case for HCL’s acquisition of Axon and TCS’s acquisition of Citigroup’s BPO unit,” said Pankaj Kapoor, IT analyst, Standard Chartered Securities.
The world of chief executives is much more challenging now, with shareholders keeping a watch on even their salaries. As compared to what it was 10 years ago, today companies need a CEO who can understand complexities a lot better and CEOs who have ideas to sell and increase revenues, says Krishnamurthy V Subramanian, assistant professor (finance), at the Indian School of Business, Hyderabad.
“It’s not only the track record of performance, but also the track record of truthful presentation of the company that is important. N Chandrasekharan today enjoys the brand aura as that of N R Narayana Murthy,” adds Suresh of Stanton Chase.