The move is subject to securing approval from shareholders

IT services major Infosys announced, on Monday, that it had hived off its products, platforms and services (PPS) business into a separate wholly-owned subsidiary named Edgeverve Systems Ltd. However, an unexpected feature of this move is that Finacle, Infosys’ core banking product which accounts for most of the company’s revenues from PPS, will not be a part of this subsidiary.

In a one-line statement, the company confirmed that Finacle would continue to be part of Infosys Ltd. The announcement sent Infosys’ shares up by 2.33 per cent closing 72.5 points higher on the Bombay Stock Exchange.

The subsidiary, which has been the subject of much speculation since the proposal was made public a year ago, was incorporated in February and received board approval on April 15. Though Infosys did not respond to queries on the new leadership, it has been widely speculated that Sanjay Purohit, who is heading products and platforms currently, will be the CEO of the new subsidiary.

The company said, in a stock exchange filing, that the move is subject to securing approval from shareholders at the company annual general meeting, slated to be held on June 14. “On April 15, 2014, the board of directors of Infosys has authorized the company to execute a business transfer agreement and related documents with Edgeverve,” the statement said. All Infosys’ PPS businesses are branded as Infosys Edge.

Analysts surprised

Analysts were surprised that the company has decided to retain Finacle, which accounts for a bulk of PPS revenues. Dipen Shah, head of private client group research at Kotak Security, said that the separation of PPS into a separate subsidiary is a sound move as the dynamics of the products business is very different from services. “The decision to hive off will provide greater thrust and focus on this vertical. They can have different policies, and probably the division will also yield higher profits margins ahead when compared to services.”

However, he said that he could not comment on the decision to keep Finacle, which he said is among the few full-fledged products the company had. Another analyst, who did not wish to be quoted, said that while he did not know of the company’s logic behind the move, he felt that keeping Finacle with the parent company is a “curious move” given the remaining platforms portfolio was not as revenue generating.

RELATED NEWS

Change is painful, says Narayana MurthyMay 15, 2014

More In: Industry | Business