You are here
Infosys dives most in 6 years as whistleblowers target CEO
[BENGALURU] Infosys Ltd's shares plunged to a 10-month low after whistleblowers accused chief executive officer Salil Parekh of leading an effort to shore up profits through irregular accounting, turning up the heat on an IT services giant that endured internal turmoil just two years ago.
The stock fell as much as 16 per cent on Tuesday, wiping out 2019's gains via its biggest intraday fall since April 2013. The letter, addressed to the board and published by the Deccan Herald, charged Mr Parekh with "unethical practices" to boost revenues and profit in recent quarters, anonymous whistle-blowers wrote in a memo titled "Disturbing unethical practices."
The whistleblowers also said recent big deal wins may have come with negligible margins. They asked the board to investigate and take action, offering to provide emails and voice recordings to support their allegations.
Chairman and co-founder Nandan Nilekani pledged a full investigation, saying the allegations had gone before the company's audit committee. The memo dated Sept 20 was the latest in a series of whistleblower complaints that wrought havoc at Asia's second most valuable IT services firm, triggering the exit of previous CEO Vishal Sikka after a confrontation with co-founder Narayana Murthy. The company, a symbol of India's technological boom, had gained more than 15 per cent of market value this year as it stabilized the business with a transition toward automation.
The allegations "could severely damage the company's pristine brand if true, especially in the IT services industry," Bloomberg Intelligence analyst Anurag Rana wrote. "It could also hurt short-term sales, as clients may look for other providers for newer projects."
Mr Nilekani had only just proclaimed last year that Infosys had become "boring again." The allegations come as Infosys and larger rival Tata Consultancy Services Ltd, which build software and provide services to some of the world's largest banks and retailers, navigate an increasingly difficult business environment. The industry is grappling with a trend toward automation and rapid technology changes.
This month, Infosys posted a 2 per cent fall in quarterly profit after nervous clients held off on spending and growth in traditional service contracts stalled. That underscored the challenge for Mr Parekh, who has pledged to drive growth in digital services, re-energize core offerings, re-skill employees and hire locally in a key US market where a tightening H-1B visa regime is making it more difficult to import labor. Tata Consultancy also posted earnings that lagged projections.
"The newsflow around this may dominate investor attention in the near term and could continue to support the shift toward TCS," Emkay analyst Manik Taneja wrote.
The IT services giant itself has undergone internal upheaval in the recent past. The memo emerged days after the departure of former deputy chief financial officer, Jayesh Sanghrajka.
Mr Parekh, a former Capgemini SE executive, was named to the helm in 2017 after a very public battle between his predecessor and the company's founders, who objected to Mr Sikka's strategy and compensation. At the time, Mr Sikka quit over what he described as "a continuous drumbeat of allegations" over management and corporate governance. The share price tumbled, wiping out billions of dollars in investor wealth.
After the drama, which chairman Nilekani had described as reaching "reality TV" like proportions, the more low-key Mr Parekh was regarded as an apt choice to lead the company. He is only the second outsider, after Mr Sikka, to take the top job at the four-decade-old Infosys where its co-founders - middle-class Indian engineers who started it with 10,000 rupees (S$191) - typically revolved through the CEO's office.
"The whistleblower complaint has been placed before the audit committee as per the company's practice and will be dealt with in accordance with the company's whistleblowers policy," Infosys said in an emailed statement on Monday.