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Infosys Technologies
Management team
strengthened
„Management transition behind, team strengthened
Announcement of management transition should be stock positive, both in terms
of removing uncertainty and likely injecting fresh perspective & energy. The new
non exec-Chairman Mr KV Kamath is a highly regarded corporate leader. COO,
Mr. Shibulal will take over as CEO & MD as expected and brings rich experience.
Mr. Murthy appointed as Chairman Emeritus and Kris as Exec co-Chairman will
ensure management continuity & help Infy benefit from their experience and
thought leadership. Finally, consolidation into four key verticals & likely induction
of 3 Exec Council members to the Board in June, to strengthen mgmnt bandwidth.
New Chairman: Mr K.V. Kamath; Shibu is new CEO
Mr. K.V.Kamath joined the Infosys board in May 2, 2009 and becomes Chairman
on Aug 21, when founder, Chairman and Chief Mentor Mr. N.R.Narayana Murthy,
retires. Under his leadership the ICICI group transformed itself into a diversified,
technology driven financial services group. He could inject more dynamism into
Infosys in terms of investing in new growth opportunities both organically and
through acquisitions. Current COO & one of the founders S.D. Shibulal takes over
as CEO, and brings well rounded experience on both the delivery and sales sides.
Organization fine tuned & stronger management structure
Infy is also fine tuning the organization to embark on its next phase of growth
Infosys 3.0 where it is positioning its offerings as optimization, transformation and
innovation. While the details will be disclosed later, these moves include
enhancing vertical focus by a) consolidation to 4 verticals b) vertical alignment of
service lines c) launch of 3 new service lines like cloud and d) verticalisation of
some emerging geos like Asia Pac. Decision making could become more
decentralized and could help the organization become more nimble in closing
customer deals and in investing for the future. To watch for: any employee churn.
Management team strengthened
We view the much awaited announcement of Chairman, CEO transition and
organization restructuring as a stock positive, in terms of removing
uncertainty and it likely injecting fresh energy while ensuring management
continuity.
At 21xFY12e PE, nearly 10% discount to TCS, and similar FY11-13 EPSg of
20%, we retain Buy on Infosys with a PO of Rs3,700 at 22x FY13e PE at an
FY12 EV/E to 2 yr EBITDA growth of 0.9x, in line with its 5 yr median. We
see rev-led upside risk to our estimates on a) strong hiring b) large deal
wins and c) operating leverage. We believe risk-reward is in favor of
Infosys.
Management succession
New Chairman: Mr K.V. Kamath
Mr. K.V.Kamath joined the Infosys board on May 2, 2009 and become non-Exec
Chairman in Aug when Mr. Narayana Murthy retires. He has a degree in
mechanical engineer and is an MBA from IIM (Ahmedabad) Under his leadership
the ICICI group transformed itself into a diversified, technology driven financial
services group. He could inject more dynamism into Infosys in terms of investing
in new growth opportunities both organically and through acquisitions. The
retirement age for non founders has been raised to 70 years, suggesting Mr.
Kamath could remain Chairman for 7 years.
Kris elevated to Exec co-Chairman
Mr. S. Gopalakrishnan (Kris), a co-founder of the Company, has been serving as
the Chief Executive Officer and Managing Director since June 22, 2007. His
elevation to the role of executive co-chairman ensures not only management
continuity but continued benefit from his thought leadership. As a founder he may
have only 1 more year before he attains 60 years and has to retire from an
executive position.
COO S.D. Shibulal takes over as CEO, as expected
As had been widely anticipated, co-founder and COO, Shibu has taken over the
role of CEO from Kris. Shibu is well regarded, has played a pivotal role in the
Infosys journey and a seminal role in the evolution of the Global Delivery Model.
He brings a wealth of experience – both on the sales (has served as the global
head of sales) and the overall business planning and delivery side (as a COO) in
shaping the organization.
Narayana Murthy – Chairman Emeritus
NRN will remain associated with the company as Chairman Emeritus for life and
help Infy benefit from his vision, thought leadership and guidance.
3 new Board members to be inducted in June
3 Exec Council members to be appointed Directors to the board by June 11,
2011. Decision on COO will be taken by the company at a later stage.
Infosys 3.0
The new leadership emphasized staying relevant to the customer organization as
its key priority under Infosys 3.0 with the three offerings of optimization,
innovation and transformation.
Last month Infy introduced a new brand positioning and vision statement for itself,
and said it's stepping into a new phase that it describes as Infosys 3.0.
This is aimed at moving from a technology solutions company to a business
solutions company and proactively helping customers build the enterprise of
tomorrow. The brand positioning statement has accordingly changed from 'Win in
the flat world' to 'Building tomorrow's enterprise'. The objective is to ensure that in
the next 5-7 years, the company's revenues would come equally from business
transformation projects, innovation projects and operational efficiency projects.
The last of these is Infy's traditional business (using technology to improve
efficiencies in portions of a customer's business) and accounts currently for as
much as 65% of revenues. Business transformation deals account for about 25%
of revenues and innovation/products business about 9.5%.
Accordingly, the company is stepping up investments in developing expertise in
what it sees as the most important global trends. These include what it calls
'digital consumer' (digital products permeating all aspects of life), 'new commerce'
(mobile commerce leading to extremely small transactions), `healthcare economy'
(healthcare becoming more preventive, affordable and inclusive), 'sustainable
tomorrow' (doing things in an environmentally and socially sustainable way),
`smarter organizations' (making organizations more adaptable, less complex),
'emerging economies' (global growth concentrated in these areas) and 'pervasive
computing' (all devices becoming computing devices).
Big investments will also go into enhancing Infosys's innovation capabilities. The
banking product Finacle has been an early success; more recently, there have
been products like Flypp, an application platform that helps mobile operators to
more easily monetize, and iEngage, a digital platform to engage consumers
across the entire marketing lifecycle. The company now wants to do many more
of those, as also co-create products with their customers.
Fine tunes organization structure
As expected by us in our deep dive note on organization structure (Deep dive:
Significance of organization structure), Infy continues to have a largely optimal
design. We understand the fine tuning of the existing structure is largely to
increase the vertical focus of its offerings and adding new service offerings
around technology trends of cloud and mobility.
In its press meeting last week and during the quarterly results, company also
announced fine tuning of its organization structure to enhance vertical focus.
1. Organisation to be consolidated into four verticals of banking, financial services
and insurance (BFSI); energy, utilities and telecom; retail, life science and
pharma; and manufacturing.
2. It will also add three new service lines of cloud, mobility and sustenance.
3. Vertical alignment of service lines
3. While more details around the restructuring will be announced by the company
at a later stage, we expect the company to extend verticalisation to APAC and
extend country management for geographies.
We believe this could help decision making become more decentralized and
help organization become more nimble and scaleable. It could also facilitate
necessary investments in innovation
Highlights of the current structure
It adopted an industry group cum service line BU structure and P&L
responsibility 5-6 years back, and this is reflected in strong client mining
and industry high profitability of 29-30% EBIT margin.
New business development: Responsibility lies with the vertical heads in
developed markets and with country heads in small / developing markets unlike
TCS that has a geographical organization in all markets to gain new clients.
Client mining: Responsibility of verticals in developed markets and the country
heads in emerging geos like Asia, LatAm , similar to peers.
Continental Europe and Emerging markets: Existing clients and new business
development was verticalised in 2007, but has enhanced country focus in
Germany, France and likely to extend this for other regions like Netherlands,
Benelux. Follows a country approach for the emerging markets like India, China,
Latin America. Client mining and new business development responsibilities are
the onus of the respective country managers.
Role of horizontal business units : All major service lines (except ADM)
organized as separate business units with P&L responsibility. These work in sync
with vertical units to meet growth targets, again similar to TCS. We believe the
horizontal businesses could be increasing verticalised from here on.
Enterprise Application Services: Separate horizontal and doing very well.
Delivery: Application Development and Maintenance (i.e. the legacy non
specialized service line) resources owned by the respective verticals unless a
particular resource is on the bench for over a certain period of time, resources
remain aligned to their unit.
Highlights of last org structure changes (Nov 2007)
„ Creation of a 10-member Executive Council
A) Structuring for revenue generation
„ Separate business units were created to focus on India and other emerging
markets (Australia, Latin America, China, Japan, Middle East).
„ Consolidated sales, marketing and alliances under one group
B) Structuring for service delivery
„ Realignment to 6 industry units and 5 horizontal units that served across all
the verticals (Consulting, Enterprise Solutions, Infrastructure Management
Services, Product Engineering Services, Systems Integration)
„ European business was also divided by industry and integrated within the
vertical units
Price objective basis & risk
Infosys Tech (INFYF / INFY)
Our Price Objective of Rs3,700 (US$80 for ADR, at parity) is based on a target
FY12 EV/EBITDA to 2yr EBITDA growth of 0.95x, in-line with its 5yr median
multiple. This implies a FY13e P/E of approximately 22x, broadly in line with
current 1yr forward (FY12e) PE. Downside risks to estimates stem from macro
led delays in IT spend, sharp appreciation of the Rupee and Outcome of
management succession & reshuffle
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Technologies
Management team
strengthened
„Management transition behind, team strengthened
Announcement of management transition should be stock positive, both in terms
of removing uncertainty and likely injecting fresh perspective & energy. The new
non exec-Chairman Mr KV Kamath is a highly regarded corporate leader. COO,
Mr. Shibulal will take over as CEO & MD as expected and brings rich experience.
Mr. Murthy appointed as Chairman Emeritus and Kris as Exec co-Chairman will
ensure management continuity & help Infy benefit from their experience and
thought leadership. Finally, consolidation into four key verticals & likely induction
of 3 Exec Council members to the Board in June, to strengthen mgmnt bandwidth.
New Chairman: Mr K.V. Kamath; Shibu is new CEO
Mr. K.V.Kamath joined the Infosys board in May 2, 2009 and becomes Chairman
on Aug 21, when founder, Chairman and Chief Mentor Mr. N.R.Narayana Murthy,
retires. Under his leadership the ICICI group transformed itself into a diversified,
technology driven financial services group. He could inject more dynamism into
Infosys in terms of investing in new growth opportunities both organically and
through acquisitions. Current COO & one of the founders S.D. Shibulal takes over
as CEO, and brings well rounded experience on both the delivery and sales sides.
Organization fine tuned & stronger management structure
Infy is also fine tuning the organization to embark on its next phase of growth
Infosys 3.0 where it is positioning its offerings as optimization, transformation and
innovation. While the details will be disclosed later, these moves include
enhancing vertical focus by a) consolidation to 4 verticals b) vertical alignment of
service lines c) launch of 3 new service lines like cloud and d) verticalisation of
some emerging geos like Asia Pac. Decision making could become more
decentralized and could help the organization become more nimble in closing
customer deals and in investing for the future. To watch for: any employee churn.
Management team strengthened
We view the much awaited announcement of Chairman, CEO transition and
organization restructuring as a stock positive, in terms of removing
uncertainty and it likely injecting fresh energy while ensuring management
continuity.
At 21xFY12e PE, nearly 10% discount to TCS, and similar FY11-13 EPSg of
20%, we retain Buy on Infosys with a PO of Rs3,700 at 22x FY13e PE at an
FY12 EV/E to 2 yr EBITDA growth of 0.9x, in line with its 5 yr median. We
see rev-led upside risk to our estimates on a) strong hiring b) large deal
wins and c) operating leverage. We believe risk-reward is in favor of
Infosys.
Management succession
New Chairman: Mr K.V. Kamath
Mr. K.V.Kamath joined the Infosys board on May 2, 2009 and become non-Exec
Chairman in Aug when Mr. Narayana Murthy retires. He has a degree in
mechanical engineer and is an MBA from IIM (Ahmedabad) Under his leadership
the ICICI group transformed itself into a diversified, technology driven financial
services group. He could inject more dynamism into Infosys in terms of investing
in new growth opportunities both organically and through acquisitions. The
retirement age for non founders has been raised to 70 years, suggesting Mr.
Kamath could remain Chairman for 7 years.
Kris elevated to Exec co-Chairman
Mr. S. Gopalakrishnan (Kris), a co-founder of the Company, has been serving as
the Chief Executive Officer and Managing Director since June 22, 2007. His
elevation to the role of executive co-chairman ensures not only management
continuity but continued benefit from his thought leadership. As a founder he may
have only 1 more year before he attains 60 years and has to retire from an
executive position.
COO S.D. Shibulal takes over as CEO, as expected
As had been widely anticipated, co-founder and COO, Shibu has taken over the
role of CEO from Kris. Shibu is well regarded, has played a pivotal role in the
Infosys journey and a seminal role in the evolution of the Global Delivery Model.
He brings a wealth of experience – both on the sales (has served as the global
head of sales) and the overall business planning and delivery side (as a COO) in
shaping the organization.
Narayana Murthy – Chairman Emeritus
NRN will remain associated with the company as Chairman Emeritus for life and
help Infy benefit from his vision, thought leadership and guidance.
3 new Board members to be inducted in June
3 Exec Council members to be appointed Directors to the board by June 11,
2011. Decision on COO will be taken by the company at a later stage.
Infosys 3.0
The new leadership emphasized staying relevant to the customer organization as
its key priority under Infosys 3.0 with the three offerings of optimization,
innovation and transformation.
Last month Infy introduced a new brand positioning and vision statement for itself,
and said it's stepping into a new phase that it describes as Infosys 3.0.
This is aimed at moving from a technology solutions company to a business
solutions company and proactively helping customers build the enterprise of
tomorrow. The brand positioning statement has accordingly changed from 'Win in
the flat world' to 'Building tomorrow's enterprise'. The objective is to ensure that in
the next 5-7 years, the company's revenues would come equally from business
transformation projects, innovation projects and operational efficiency projects.
The last of these is Infy's traditional business (using technology to improve
efficiencies in portions of a customer's business) and accounts currently for as
much as 65% of revenues. Business transformation deals account for about 25%
of revenues and innovation/products business about 9.5%.
Accordingly, the company is stepping up investments in developing expertise in
what it sees as the most important global trends. These include what it calls
'digital consumer' (digital products permeating all aspects of life), 'new commerce'
(mobile commerce leading to extremely small transactions), `healthcare economy'
(healthcare becoming more preventive, affordable and inclusive), 'sustainable
tomorrow' (doing things in an environmentally and socially sustainable way),
`smarter organizations' (making organizations more adaptable, less complex),
'emerging economies' (global growth concentrated in these areas) and 'pervasive
computing' (all devices becoming computing devices).
Big investments will also go into enhancing Infosys's innovation capabilities. The
banking product Finacle has been an early success; more recently, there have
been products like Flypp, an application platform that helps mobile operators to
more easily monetize, and iEngage, a digital platform to engage consumers
across the entire marketing lifecycle. The company now wants to do many more
of those, as also co-create products with their customers.
Fine tunes organization structure
As expected by us in our deep dive note on organization structure (Deep dive:
Significance of organization structure), Infy continues to have a largely optimal
design. We understand the fine tuning of the existing structure is largely to
increase the vertical focus of its offerings and adding new service offerings
around technology trends of cloud and mobility.
In its press meeting last week and during the quarterly results, company also
announced fine tuning of its organization structure to enhance vertical focus.
1. Organisation to be consolidated into four verticals of banking, financial services
and insurance (BFSI); energy, utilities and telecom; retail, life science and
pharma; and manufacturing.
2. It will also add three new service lines of cloud, mobility and sustenance.
3. Vertical alignment of service lines
3. While more details around the restructuring will be announced by the company
at a later stage, we expect the company to extend verticalisation to APAC and
extend country management for geographies.
We believe this could help decision making become more decentralized and
help organization become more nimble and scaleable. It could also facilitate
necessary investments in innovation
Highlights of the current structure
It adopted an industry group cum service line BU structure and P&L
responsibility 5-6 years back, and this is reflected in strong client mining
and industry high profitability of 29-30% EBIT margin.
New business development: Responsibility lies with the vertical heads in
developed markets and with country heads in small / developing markets unlike
TCS that has a geographical organization in all markets to gain new clients.
Client mining: Responsibility of verticals in developed markets and the country
heads in emerging geos like Asia, LatAm , similar to peers.
Continental Europe and Emerging markets: Existing clients and new business
development was verticalised in 2007, but has enhanced country focus in
Germany, France and likely to extend this for other regions like Netherlands,
Benelux. Follows a country approach for the emerging markets like India, China,
Latin America. Client mining and new business development responsibilities are
the onus of the respective country managers.
Role of horizontal business units : All major service lines (except ADM)
organized as separate business units with P&L responsibility. These work in sync
with vertical units to meet growth targets, again similar to TCS. We believe the
horizontal businesses could be increasing verticalised from here on.
Enterprise Application Services: Separate horizontal and doing very well.
Delivery: Application Development and Maintenance (i.e. the legacy non
specialized service line) resources owned by the respective verticals unless a
particular resource is on the bench for over a certain period of time, resources
remain aligned to their unit.
Highlights of last org structure changes (Nov 2007)
„ Creation of a 10-member Executive Council
A) Structuring for revenue generation
„ Separate business units were created to focus on India and other emerging
markets (Australia, Latin America, China, Japan, Middle East).
„ Consolidated sales, marketing and alliances under one group
B) Structuring for service delivery
„ Realignment to 6 industry units and 5 horizontal units that served across all
the verticals (Consulting, Enterprise Solutions, Infrastructure Management
Services, Product Engineering Services, Systems Integration)
„ European business was also divided by industry and integrated within the
vertical units
Price objective basis & risk
Infosys Tech (INFYF / INFY)
Our Price Objective of Rs3,700 (US$80 for ADR, at parity) is based on a target
FY12 EV/EBITDA to 2yr EBITDA growth of 0.95x, in-line with its 5yr median
multiple. This implies a FY13e P/E of approximately 22x, broadly in line with
current 1yr forward (FY12e) PE. Downside risks to estimates stem from macro
led delays in IT spend, sharp appreciation of the Rupee and Outcome of
management succession & reshuffle
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