Infosys has moved swiftly and in right direction by recalling its erstwhile star CEO and founder, Mr. Nandan Nilekani to take over as Non‐Executive Chairman of the Board within a week of Dr. Sikka’s resignation. On taking charge, Mr. Nilekani spelt out 3 key priorities: 1) appointing a new CEO from internal, external and Infosys alumni with strong technological credentials; 2) completing re‐constitution of the board in consonance with stakeholders; and 3) stabilise and grow business.
Is the buyback attractive?
Infosys has a total of 229.45 crore shares, out of which it plans to buy back 11.30 crore shares. The buyback price is Rs1,150 which is a 26% premium to the current price. According to SEBI rules, 15% of shares to be bought back are reserved for investors holding up to Rs2 lakh worth of shares; hence 15% of 11.30 crore shares or 1.70 crore shares will be bought from those holding shares worth Rs2 lakhs. There are about 2.87 crore shares owning less than Rs2 lakh worth of shares. This means an acceptance ration will be around 60%. Should you buy Infosys shares and tender in buyback?The acceptance ratio will increase if the market value of the stock rises above its current level because then the number of shares totalling to Rs2 lakhs will reduce, which will increase the acceptance ratio. The ratio will also rise if not all retail shareholders tender their shares. We feel it is a good opportunity to participate in the buyback. If you do, buy about Rs170,000 worth of shares at current prices to stay safely below the Rs2 lakh limit in case the stock rallies. If your shares are accepted, tender them in the offer and exit the remaining shares at the market price. Infosys is not a long-term investment at this stage.
Even without buyback and dividend we feel Infy is trading at good valuations and should be considered as a buy with long term view.