Shake-up at the top imminent at IGATE as growth continues to lag

The $1.2-billion IGATE Corp which took over Patni Computers four years ago may be in for another major top management shake-up.

Sources in the company have told BusinessLine that two years after former Infosys honcho Ashok Vemuri was brought to steady the ship after the controversial exit of Phaneesh Murthy, growth continues to lag.

Its gross margins over the last 12 months have dropped to 36 per cent in 2014 from 39.3 per cent in 2013, and net income has declined to $110 million in 2014 from $129.8 million in 2013.

Vemuri, who is the President and CEO of IGATE, also brought in new initiatives which were a marked departure from the industry practice of ‘just in time’ hiring. His ‘hiring for growth’ model, sources say, created a bench of 5,000 employees which is 15 per cent of IGATE’s total headcount of 33,484 employees as of December 31, 2014.

At a time when most IT services firms are posting healthy utilisation rates, well above 80 per cent, IGATE saw utilisation drop to 75.9 per cent in 2014 from 80.6 per cent in 2013.

According to another source, “The company’s promoters and co-chairmen, Sunil Wadhwani and Ashok Trivedi have a reputation for sacking CEOs who have not performed well in the past. No CEO except for Phaneesh Murthy, who was around for almost 10 years, has ever lasted beyond 12-18 months.”

In another development, four of IGATE’s top executives have sold their shares in the open market during the last two weeks. Vemuri sold 18,750 shares for a total value of $731,438 while the Chief People Officer, Srinivas Kandula sold 19,249 shares for $748,594. EVP and CFO, Sujit Sircar sold 4,358 shares for $141,984 while Martin G McGuinn, Director, sold 38,000 shares for $1,311,000.

“Instead of keeping key metrics in sight, Vemuri resorted to hiring irrationally without ensuring a healthy pipeline of deals or delivering anything significant on the revenue front. Consequently, 90 per cent of the 5,000 employees on the bench may be asked to go in batches,” the source said.

IGATE watchers say that before Vemuri took over, profit margins were healthy, revenue growth was 13 per cent, and even the largest $200-million multi-year deal with CNA Financial, which the company closed in Q2 of 2014, was entirely processed by Phaneesh Murthy.

On being contacted, the company in a statement said, “IGATE has neither laid off any employee nor has any such intention. It is true that as a part of performance appraisal for 2014, a few employees have been put on performance improvement plan. This shall not be understood as an effort to separate employees.”