Infosys may benefit from weak rupee, analysts eye stability

CLSA says valuations unlikely to change until leadership stabilises

Infosys is likely to be an exception among peers, who are cheering amid the recent weakness in rupee, as concerns over the recent high-level exits at the company are likely to overshadow the gains it may have due to a favourable currency.

“The exit of two key senior managers in the last week has somewhat spiked Murthy’s efforts at turning around Infosys,”brokerage firm CLSA said in a note published today.

“While the currency will no doubt aid near-term financial metrics, valuations seem unlikely to re-rate materially until stability returns at the top,” it added.

The Indian rupee has depreciated 21% against the dollar, since April, and has fallen 8% in the last one week. According to analysts, every one% depreciation in the value of the rupee leads to as much as 50 basis points gains in the operating margins of most information technology companies.

The country's second largest IT exporter, Infosys, has seen three senior-level exits over the past 50 days. In July, global sales and marketing head Basab Pradhan quit. That was followed by the resignation of senior vice-president and head financial services in Americas Sudhir Chaturvedi last week.

On Wednesday, Ashok Vemuri, head of operations (Americas) and global head (manufacturing and engineering services) resigned from the company. Vemuri was also a member of Infosys' board.

Amid the various challenges at Infosys, including low employee morale, attempts towards margin turnaround, and revenue revival, CLSA said these developments will add to the woes as it will raise more questions about the company's leadership planning.

“Infosys’ top management cadre has been an uneasy lot ever since the 2011 re-organisation as pockets of angst continued well past the re-organisation. This spate of exits suggests stability in Infosys’ top management team is still sometime away and Murthy’s immediate challenge is to prevent further exits as competitors will invariably try and poach some senior-level employees,” CLSA added.