Report on Infosys Buy-back | Is Infosys right stock to invest in |

All eyes on Nandan Nilekani – The spat between the Founders & the CEO  has dented Infosys goodwill at all levels – clients, employees & investors. But  the company’s quick move to bring back Mr. Nilekani will enable things to gradually get back to normal.

He will have to go back to the drawing board  and come up with his plan to handle the immediate tasks at his hand. Mr.  Nilekani clearly highlighted his tenure is not time bound, but task bound, i.e:  1) appoint a CEO; and 2) restore stability to the board and business. We  believe his comeback is a positive and will curb further damage to business,  clients and employees. 

We believe Q2FY18 results  will bring forth key  strategy initiatives which will enable the company to win back some lost  glory. While we don’t expect major changes in stated strategy there may be  changes in implementation of the strategy.

Company’s focus on accelerating growth traction – Infosys, has lost on  in the recent past, to its peers like TCS and HCL Technologies on account of  weak presence in Infrastructure management services & lack of presence in  emerging geographies. The company’s inflexibility in structuring contracts  and offer discounted pricing to clients is also a key challenge.

The challenges  posed by the recent restructuring events has adversely impacted growth. We  believe, on the back of the investments made it is likely the company will  catch up with its peers in revenue growth and is well placed to expand its  margins due to current low level of utilization and possibility of increase in  offshore execution coupled.

Buy-Back to further drive shareholder value – The board has approved  a buy-back of Rs 13,000 crs. (4.92% of equity) and is seeking shareholder  approval (date of conclusion of postal ballot -7th October). The buy-back  price is Rs1,150/-, which is ~28% premium to current market price.

We  believe the retail investors can benefit from the price arbitrage available at  this point of time.SEBI mandates ~15% of the issue be reserved for retail  investors (holding of Rs2 lacs and lower). Of the total buyback size of 11.3 cr  shares, 1.69 crs (Rs1950 crs) is reserved for retail investors.

There are ~2.87 crs retail shareholders in Infosys with shares held of 200 or less. On an assumed cost of acquisition of ~ Rs1000/- on the record date, the entitlement  ratio works out to ~60% (1.69/2.87).

Acceptance ratio can be higher for retail investors with given the record date fixed for the buyback is below the  assumed cost of acquisition of Rs1000/-.  Also the low promoter’s ownership can further improve acceptance ratio.

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