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Infosys pick Salil Parekh as CEO and MD is tried and tested move; transition should be quick: JM Financial

While a return of stability at Infosys should comfort investors, we believe a meaningful re-rating for the stock would await a formal articulation of priorities by the new CEO that we expect only with the 4QFY18 results.

We believe the selection of Salil Parekh as CEO and MD by the Infosys board suggest a preference for tried-and-tested over experimental and execution over conception. (YouTube)

We believe the selection of Salil Parekh as CEO and MD by the Infosys board suggest a preference for tried-and-tested over experimental and execution over conception. The transition should be smooth and quick – Parekh’s portfolio at Capgemini overlaps squarely with Infosys’ – and the appointment also takes care of the cultural concerns of the promoters; Parekh will continue to be based in India. Still, continuity of Nandan Nilekani as the chairman would be critical to ensure a harmonious promoter management-board relationship. While a return of stability at Infosys should comfort investors, we believe a meaningful re-rating for the stock would await a formal articulation of priorities by the new CEO that we expect only with the 4QFY18 results.

Infosys has announced the appointment of Salil Parekh as the chief executive officer and managing director with effect from 2 January 2018 for a period of 5 years. He will join Infosys from Capgemini (CAP FP; NR), the European IT and business services firm, where he was a member of the Group Executive Board. After his joining, UB Pravin Rao will resume his role as COO.

In contrast to Vishal Sikka, the previous CEO, who had a more product-centric background, Salil is deep-rooted in IT and business services with 30 years of experience, almost all of which have been at CAP, which he joined following its acquisition of the consulting business of Ernst & Young (E&Y) in 2000. At CAP, Salil was part of the core team that managed the expansion of its offshore capacities in India till 2011, post which he was appointed the head of the application services business for North America, UK, and Asia Pacific, and the global head for financial services.

In 2015, he was elevated to the six-member Group Executive Board (GEB), the top decision making team at CAP, where he also oversaw the cloud services business and Sogeti, the technology and product engineering services subsidiary of CAP. While the new CEO is unlikely to outline his roadmap for Infosys, at least before the 4QFY18 results, we believe any shifts in the strategic direction are likely to be more incremental than material. A key watch would be on the new CEO’s articulation of the acquisition strategy; Salil has experience of two major acquisitions – of E&Y (through which he joined CAP) and iGate.

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