Software firm makeover = top deck shake-up

For the past 10-15 years software services companies, registering year-on-year growth and revenue and profitability, were seen as bell weathers for India’s investors. Now, they are waking up to the rude reality “business cycles”– phases that could take dollops off the company’s growth. The result: A shake-up at the top.

[caption id="" align=“alignnone” width=“380” caption=“By Zol87. Some rights reserved”] [/caption]

Sudip Bannerjee, joined the shake-up hit list yesterday, as he quit L&T Infotech as CEO to pursue “personal aspirations”. This follows Ashok Soota, Mohandas Pai and joint CEOs at Wipro who quit their organisations.

When people work for long in one organisation and get used to a specific way of growth, their ability to adapt to tough situations is not tested.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

For years, software companies have had organic growth. Companies like Infosys, TCS and Wipro generated free cash flows and accumulated close to $8 billion in cash as of March 2011.

Over the past few quarters though, one can see competitive pressures, cut in spending by customers outside India due to the economic downturn thereby putting the brakes on the dream run.

The stock market is also ruthless. Used to companies giving a performance guidance at the beginning of a new financial year and then thumping it it reacts unfairly to results that would otherwise make any company proud. However, lately, companies have given muted revenue and profit growth guidance and often struggled to meet even that. The result is that the IT services sector no longer gets a premium that it enjoyed in the past. Investors have pruned their expectations and reduced their exposure to the sector.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

Adding to the external environment, many companies have faced top management differences and board room battles. Infosys has had to let go of its high-flying founders. Wipro fired two joint CEOs while TCS saw a leadership change when the charismatic S Ramadorai retired.

The situation is worse at mid-tier companies. Take Ashok Soota, who led Wipro to a $1billionn revenue company, to start MindTree. He has left the company he founded to start a rival business.

Over the past one year, MindTree shares have fallen 32.2% while the BSE IT sector index rose 24.4%. The company’s profitability has shown a decline over the past two financial years.

Information Technology services is a people business where, wage inflation can hurt smaller companies more than large players. Total expenses are growing at a faster clip in comparison to the total income, in the case of MindTree, which puts pressure on the operating profit.

Problems faced by MindTree are similar to those faced by other mid-tier IT companies. Some of them have opted to sell to larger players in the business. A Mumbai-based consultant pointed out that many mid-tier IT companies have CEOs with large egos. This makes decision-making a challenging process. Many of these mid-tier companies are struggling to compete with large players like Infosys, Wipro and TCS.

Expect more churn in this space.