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Multiples and men at Infosys

Multiples and men at Infosys
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First Published: Wed, Apr 20 2011. 09 57 PM IST
Updated: Wed, Apr 20 2011. 09 57 PM IST
It is as true that Nandan Nilekani made The World is Flat as it is that Thomas Friedman’s book made Nilekani. Suddenly, the (then) chief executive of India’s best known outsourcing firm, Infosys Technologies Ltd, found it easy to open doors in corporate America that he didn’t even know existed before. “Aren’t you the guy mentioned in that book,” CEOs and CFOs of Fortune 100 companies would say. “Sure, come over and we can talk.” And sometimes, the talk would result in business. Like his predecessor N.R. Narayana Murthy, Nilekani had a carefully cultivated external image. If Murthy’s image was built around honesty, austerity, and enterprise, Nilekani’s was built around intelligence, accessibility and the ability to spot trends. This image and, of course, the duo’s achievements made them role models for millions of middle class Indians, including the best and the brightest at the Indian Institutes of Technology and the Indian Institutes of Management.
Yet, it wasn’t an inflated sense of self worth that prompted this image-building exercise by the two men, but an almost intuitive understanding that this would eventually benefit the company and its investors and customers. The images of the two men and the carefully choreographed image of Infosys might have well been responsible for the valuation premium Infosys enjoyed over its peers, even the larger ones. The premium weathered the quiet exit of a man originally considered Murthy’s successor and, a sexual harassment scandal and the subsequent acrimonious exit of a fabled rainmaker. As a piece in Mint on 18 April (“TCS takes over Infosys mantle of technology bellwether”) pointed out, this premium has now all but vanished. Nilekani left the company a few years ago to join the government as its undesignated chief technology officer. Murthy will step down as chairman of the company later this month. And while Infosys remains an extremely well-governed company, age, size and the competition seem to have caught up with it.
There are other companies and groups that are strongly associated with individuals— HDFC Ltd, for instance, with Deepak Parekh, and the Tata group with Ratan Tata. But in the absence of peers with which these entities can be compared, one doesn’t know whether HDFC or the Tata companies enjoy a valuation premium arising from the presence and images of Parekh and Tata. The Bharti group and Sunil Mittal come closest to Infosys in terms of vintage, pace of growth, and the existence of a leader with a significant and generally positive public image, but the nature of the telecom business in India has ensured the absence of any real valuation premium. The future history of Infosys, then, will be an interesting study for management experts studying leadership and leaders, and stock market number crunchers trying to identify the provenance of value.
Is Infosys in for a turbulent time ahead? Tell us at views@livemint.com
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First Published: Wed, Apr 20 2011. 09 57 PM IST