(Bloomberg) – The shares of Infosys Ltd. fell to a 10-month low after informants accused Chief Executive Officer Salil Parekh of spurring on earnings support through irregular accounting and boosting IT services giant, which had suffered internal turbulence two years ago.
The stock fell by as much as 10% early Tuesday, the largest drop since August 2017. In the letter sent to the Board and published by the Deccan Herald, Parekh was accused of "unethical practices" to increase sales and profits in the Anonymous whistleblowers have written in a memo titled "Disrupting Unethical Practices" in recent quarters. The whistleblowers also said that the recent big gains may have come with negligible profit margins. They called on the board to investigate and take action. They offered to provide emails and voice recordings to substantiate their allegations.
Chairman and co-founder Nandan Nilekani promised a full investigation. The September 20 memo was the latest in a series of whistleblower complaints that led to chaos in Asia's second-largest IT services company, triggering the departure of former CEO Vishal Sikka following a confrontation with co-founder Narayana Murthy. The company, a symbol of India's technological boom, had gained more than 1
The allegations "could seriously harm the company's pristine brand if it is, especially in the IT services industry," wrote Bloomberg intelligence analyst Anurag Rana. "It could also affect short-term sales, as customers could look for other suppliers for newer projects."
Read more: Infosys profit slips after companies cut spending
Nilekani announced last year that Infosys had become "boring again." The allegations are that Infosys and its larger rival Tata Consultancy Services Ltd., which develops software and provides services to some of the world's largest banks and retailers, are coping with an increasingly challenging business environment. The industry is facing a trend towards automation and rapid technological change.
This month, Infosys saw a 2% decline in quarterly earnings after nervous customers were stuck with spending and growth on traditional service contracts. This underscores the challenge for Parekh, which has committed to driving growth in digital services, strengthening core offerings, re-qualifying employees, and employing locally in a key US marketplace where a tighter H-1B visa system imports makes work difficult. Tata Consultancy also achieved profits that fell short of the forecasts.
"The news flow could briefly dominate investor attention and continue to support the shift towards TCS," said Emkay analyst Manik Taneja.
The IT service provider itself has experienced internal upheavals in the recent past. The memo was written a few days after the departure of former Deputy Chief Financial Officer Jayesh Sanghrajka.
Parekh, a former board member of Capgemini SE, was summoned to the top in 2017 after a very public battle between his predecessor and the company's founders, raising objections to Sikkas strategy and compensation. At the time, Sikka abandoned what he called the "constant mess of allegations" about management and corporate governance. The stock price collapsed and extinguished billions of dollars in investor wealth.
Read more: "Keep calm, do not panic" CEO aims at persistent, troubled Infosys
After the drama that Chairman Nilekani had called "Reality TV" as proportions, that became more likely Parekh is regarded as a suitable choice to lead the company, and after Sikka he is only the second outsider to occupy the leading position in the four-decade-old Infosys, where co-founders – middle-class Indian engineers valued at 10,000 rupees (140 Dollars) were launched – usually through the year turned office of the CEO.
"The complaint of maladministration was submitted to the Audit Committee in accordance with corporate practice and is in accordance with the company's policy on the reporting of maladministration said in an Infosys statement emailed on Monday, 19659002] (Updates with opening from the first paragraph)
– With the support of Debjit Chakraborty, Abhay Singh and Devidutta Tripathy.
Contacting the reporter on this story: Saritha Rai in Bangalore at [email protected]
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