TCS announced the surprise exit of CEORajesh Gopinathan on March 16, stating thatKrithi Krithivasan would be taking over.- Despite the unexpected exit, brokerages are optimistic about
Krithivasan ’s leadership as there would be ‘nil disruption’. - Analysts at Nuvama Institutional Equities are of the view that the correction in shares of TCS over
Gopinathan ’s exit offers an investment opportunity.
Prior to his appointment as CEO, Krithivasan headed the banking, financial services and insurance (BFSI) segment, which is TCS’ largest. According to the company’s December quarter results, the BFSI segment contributed to 38% of TCS’ revenue, at ₹22,145 crore.
Krithivasan’s appointment received a thumbs up from brokerages given his role in heading the BFSI segment.
“BFSI is the largest segment within TCS, contributing over 30% of revenue in Q3 FY23, which makes Krithivasan the natural/perfect choice for the role,” said a report by Nuvama Institutional Equities.
Brokerages maintained an optimistic outlook on Gopinathan’s exit, largely due to Krithivasan’s experience in heading the company’s largest business segment, and his experience in leading the BFSI segment.
Krithivasan is only the fifth CEO of TCS, which was founded 55 years ago and has over 6 lakh employees on its payroll. Both Krithivasan and Gopinathan are old hands at the company, and have risen through the ranks.
“TCS is a well-oiled machine, and has a long history of seamless transitions at all management levels. Most of its leadership positions have been held by TCS veterans, who have risen through the ranks. We see nil disruption from this management transition,” the Nuvama report added.
Analysts at ICICI Securities echoed similar sentiments, given Krithivasan’s experience with TCS in various roles, and the availability of Gopinathan over the next six months to support him settle into his new role.
“This appointment is in line with TCS’ strategy of succession planning well in advance and grooming internal employees to take on leadership positions,” the ICICI Securities report added.
Overall, most brokerages sounded confident about Krithivasan’s credentials and ability to lead India’s largest IT services company. Analysts at Motilal Oswal even expressed confidence that due to his experience in leading the BFSI segment, Krithivasan wouldn’t face questions that Gopinathan had to – when he took over as the CEO in 2017.
“Notably, given his leadership of the unified BFSI vertical since 2017, he is unlikely to face external questions on client relationships that Gopinathan faced as CFO of TCS in 2017,” said a report by Motilal Oswal.
The sudden exit of Gopinathan combined with the negative sentiments in equity markets around the world have put downward pressure on the TCS stock.
TCS’ shares were down over 2% mid-way through the trading session on Monday, to ₹3,100. According to the analysts at Centrum Broking, Gopinathan’s exit could be considered as a negative in the short-term.
“Rajesh Gopinathan was re-appointed as CEO last year and therefore his resignation is a surprise and likely to be perceived negatively,” the Centrum Broking report noted.
Analysts at Nuvama underlined that investors should consider any correction in TCS’ share price as an opportunity to buy into the stock.
“Any drop in the stock price must be used as an opportunity to add as valuation is no longer expensive, which makes risk-reward profile attractive,” the Nuvama report said.
TCS’ shares have corrected by 10.8% in the last one month. However, improvements in deal pipeline and margins has analysts bullish on the stock, who expect an upside in the range of 16% to 32% over the current market price.
Note: Upside compared to current market price of ₹3,100 as on March 20, 2023
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