May 2 (Bloomberg) -- Infosys Technologies Ltd., India’s second-largest software exporter, promoted S.D. Shibulal to the post of chief executive officer, picking the company veteran to boost earnings amid rising competition for outsourcing deals.
The board also named current Chief Executive Officer S. Gopalakrishnan co-chairman, and former ICICI Bank Ltd. head K.V. Kamath as chairman, the Bangalore-based company said in an April 30 statement. Current chairman and billionaire founder N.R. Narayana Murthy will become chairman emeritus.
As CEO, Shibulal, 56, has the task of winning more outsourcing deals as bigger rival Tata Consultancy Services Ltd. widens its lead. The management changes come after Infosys’s earnings missed estimates for a third time in four quarters and the company, dealing with its worst annual rate of employee turnover in at least 13 years, forecast the lowest profit margin since at least 2003.
“The new management will need to be more aggressive in terms of pursuing new clients,” said Sampath Reddy, who manages 280 billion rupees ($6.3 billion) as chief investment officer at Bajaj Allianz Life Insurance Co. “The second thing is, it needs to look at whether acquisitions need to be done.”
The appointments are effective Aug. 21, the company said.
Infosys shares rose 0.6 percent to 2,922.55 rupees at the 3:30 p.m. close of trading in Mumbai. The shares have slumped 15 percent this year while India’s benchmark Sensex Index lost 7.3 percent.
“For many years, Infosys was a huge overperformer in the Indian market,” said Walter Rossini, who manages a 250 million-euro ($370 million) India equity fund at Aletti Gestielle SGR SpA in Milan. “Now the situation is different. TCS is favored and Infosys is the fallen angel.”
Since Gopalakrishnan became CEO on June 22, 2007, Infosys shares gained 49 percent, according Bloomberg data. Tata Consultancy, also known as TCS, more than doubled in the same period, while the benchmark Sensex index gained 32 percent.
Tata Consultancy’s lead in sales widened to 98 billion rupees in the year ended March from 59 billion rupees in 2008.
“We’re very happy,” Murthy said about rising competition and overseas rivals expanding into India. “That’s a validation of our model. That’s a validation of what we said in the late 80s and the early 90s. It’s good for the country.”
On April 30, the directors also approved changing the name of the company to Infosys Ltd. Shareholders’ consent will be sought at the annual general meeting on June 11.
The management reorganization has “lingered on for quite some time and has been quite distracting for senior employees,” Nimish Joshi, an analyst at CLSA Ltd., wrote in a note to clients on April 17.
T.V. Mohandas Pai announced his resignation as director and head of human resources development after 17 years in the company on April 15. He was expected to take over the role of chief operating officer, the Economic Times reported on April 8. K. Dinesh, a co-founder, said last month he will retire.
Shibulal, who helped found Infosys in 1981, is currently the chief operating officer. He took a five-year sabbatical, working with Sun Microsystems between 1991 and 1996. He returned to Infosys and established its Internet consultancy practice and later was the head of worldwide sales.
Shibulal has master’s degrees in physics and computer science from the University of Kerala and Boston University.
“Every organization needs to transform itself periodically to remain relevant,” he said at a press conference on April 30. “With the advent of cloud, perhaps the most disruptive of changes in recent times, we are looking at global delivery model on cloud as a key driver for Infosys 3.0.”
Murthy, 64, convinced six fellow software engineers to help him set up Infosys in 1981. They started with $250, borrowed mostly from their wives, and became the first Indian company to list on the Nasdaq stock market.
“Shibu has been a remarkable COO these past few years,” said Jeffrey S. Lehman, chairman of the nominations committee. “Shibu understands this company as well as anybody alive, and he has in many ways been preparing for this role for three decades.”
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