Information technology services and consultancy firm Infosys' shares in the Indian and the US markets fell after a whistleblower group alleged that the company has used unethical practices to boost its revenue and margin numbers.
The Bengaluru-based IT firm’s shares plunged 13% on the Bombay Stock Exchange (BSE) on Tuesday morning. On Monday the company’s American depositary receipts (ADR) listed on New York Stock Exchange (NYSE) and NASDAQ fell 14%.
Infosys chairman and co-founder Nandan Nilekani has issued a statement, saying that the company was objectively looking at the complaint. He added that the chief executive and chief financial officers will recuse themselves from the investigation.
“Although we have not been provided with any of the emails or voice recordings, we will
ensure that the generalized allegations are investigated to the fullest extent. Additionally, to ensure independence in these investigations the CEO and CFO have been recused from this matter,” Nilekani said in a statement.
After the previous period of friction between Infosys founder NR Narayana Murthy and former chief executive Vishal Sikka on multiple issues, this new crisis plunges Infosys back into an uncertain period. The allegations could even affect the company’s future deal-making capabilities, analysts said.
On Monday, financial daily The Economic Times reported that a whistleblower group calling itself "ethical employees, has complained against Infosys. The group has alleged that the company is taking unethical steps to boost the firm's short term revenue and profit numbers.
The letter also alleged that chief executive Salil Parekh is bypassing reviews and approvals for larger deals. "He (Parekh) directs them to make wrong assumptions to show margins. (The) chief financial officer or CFO is compliant and he prevents us from showing in board presentations large deal issues. Several billion-dollar deals of last few quarters have nil margin," the letter said.
The US market regulator Securities and Exchange Commission, as well as the Indian market regulator, SEBI, is expected to probe the whistleblower allegation. Previously, Hyderabad-based Satyam Computers was found guilty of fudging revenue and profit numbers and the firm was later sold to Tech Mahindra.
This is not the first time that Infosys has faced such allegations. A whistleblower had earlier alleged irregularities in the Infosys-Panaya deal.
The IT giant had written off most of the value of the $200 million acquisition of the Israeli startup and was reportedly one of the reasons why former chief financial officer Rajiv Bansal quit the firm. The allegations also saw the exit of former chief executive Vishal Sikka.
During the past few quarters, Infosys has performed better than its peers Tata Consultancy Services and Cognizant even as the industry faces uncertainty amid financial sector woes and global economic downturn. Surprisingly, Infosys had even improved margins in the last quarter.