Tough issues for Murthy successor

Has to keep herd together, service massive takeover debt on Patni; however, operational performance unlikely to be affected

With the firing of Phaneesh Murthy as chief executive officer, iGate has the uphill task of keeping the herd together, as well as making sure to generate enough cash to service the huge debt it had made for acquisition of Patni Computer.

During a conference call with journalists today, Murthy said many of the employees "had expressed solidarity" with him and even "offered to resign".

According to sector analysts, Murthy is best known as a people's man, someone who knows how to run the show by taking everyone together.

"There may be a little bit of turbulence but in a situation like this, I don't think the company had any other choice," said Partha Iyengar, vice-president at Gartner, the analyst firm.

"Phaneesh had painted a vision for the company and somehow helped the company of that size to get visibility in the market place. But the fact is that they have not been that successful. If the new CEO is more practical in realising the overall capability of a company of that size and focuses on basics, iGate might actually do better than it did under Phaneesh," he added.

In the quarter ended March 31, iGate posted a better than expected growth in revenue and net profit. The latter surged 44 per cent to $35 million and revenue went up four percent to $274.9 million, on a year-on-year basis. The company sounded upbeat about the business environment, saying it was seeing the return of discretionary spending.

The biggest challenge will be to fully complete the 'work in progress' integration of Patni. Experts say the Patni back-end is yet to be fully integrated with iGate. Besides, the company has debt of over $1 billion. This includes a loan of $770 million of a five-year tenure, servicing of which itself requires $70 mn a year.

Today, the shares of this Nasdaq-listed firm plunged over nine per cent to $14.90 in early trade.

However, iGate says Murthy's exit will have no impact on the company, which is backed by strong operational parameters. "Murthy's departure was not related in any way to the operational or financial performance, both of which remain strong," said Ashok Trivedi, co-founder and co-chairman of iGate.

During the analysts' call after the March results, the chief financial officer, Sujit Sircar, said the company had a strong deal pipeline of about $3.5 bn.

Murthy, touted as a comeback man at iGate, was vigorously pursuing an aggressive merger & acquisition and marketing strategy, to gain scale with global and Indian majors. His ambition was best known when the company initially showed keenness to acquire the then scam-ridden Satyam Computer. After failing to seal the deal, Murthy went for the acquisition of Patni in 2011, which was much bigger than iGate at that time.

Recently, iGate under Murthy went for an advertising blitzkrieg in North America to promote its outcome-based model, which has so far not been that successful. In the recent analysts' meeting, Murthy had said the company was seeing early signs of success there.

"Whatever model you adopt, the success of that depends on the outside environment. That is not going to change with the leadership. As long as the new CEO is able to retain the key executives under him and run the company, his (Murthy's) exit is not going to make much of an impact," said a top official of an Indian information technology services company.