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Friday , June 13 , 2014
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Brokerages place Sikka bets
High return seen in proprietary software

Mumbai, June 12: Brokerages are betting that Vishal Sikka will be able to haul Infosys out of the rut — and that the struggling software exporter will soon return to glory days of growth on steroids.

The bets are predicated on the belief that Sikka, who has strong academic, research and corporate credentials, will be able to win more business for Infosys, which derives over 97 per cent of its revenues from outside India.

Sikka’s appointment comes after a series of high-profile exits that sparked deep anxiety about the company’s future — concerns that the company stoically refused to acknowledge as cause for disquiet.

“With a new top management in action, we could see better clarity emerging on sales strategy from here on. This is a positive development for Infosys as there have been a series of senior-level exits in recent times,” said Daljeet Singh Kohli, head of research, IndiaNivesh Securities Ltd.

Others were equally gung-ho over Sikka’s appointment and believed it would have a rub-off effect on the stock.

Sikka has a strong forte in product development and R&D and many felt that the product business at Infosys could now receive a fillip.

It may be recalled that Infosys had earlier bet big on its products, platform and solution (PPS) business as part of its 3.0 strategy. The plan was to get at least one-third of its revenues from intellectual property-based software products, platforms and solutions by 2020. However, the PPS unit did not perform according to its expectations.

“This business could now witness more action under the leadership of Sikka. However, it remains to be seen what strategy he follows with regard to the commoditised business,” said a research head with a foreign brokerage.

However, it is the product and R&D background of Sikka, which is causing some concern among analysts. “The key question is how will he hit in a predominantly software services company. Despite his strong credentials, a turnaround in the fortunes of Infosys will take some time,” added another analyst.

While Sikka will take over as the managing director and CEO from August 1, capital market circles added that another positive news from the management overhaul was the elevation of U.B. Pravin Rao, president and whole-time director, as chief operating officer, with effect from June 14. Many believe that this announcement will be received positively by its employees.

“Now that Infosys has a new CEO with proven credentials, we believe that the news is positive for the company’s growth prospects. We maintain our accumulate with a target price of Rs 3,640,” said Sarabjit Kour Nangra, vice-president research at Angel Broking.

Barclays Research pitched its stock price estimate higher at Rs 3,690, which it said was a 24 per cent upside to Wednesday’s close of Rs 3,193.35. It built an upside case for Rs 5,000 per share, which would “depend on a strong rebound in discretionary IT spending” that could lead to more positive revenue and margin scenarios.

Though the Infosys scrip rose almost 4 per cent during the day to Rs 3,298, it came off these highs on profit booking to close at Rs 3,166.60, a drop of Rs 12.15, or 0.38 per cent.