Time to exit Infosys? Analysts advise tendering shares in buyback

Infosys

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

It might be the best time for Infosys shareholders to tender their shares and press the exit button from the stock because in short term things are likely to remain volatile for India’s second-largest software exporter, suggest experts.

Infosys Ltd said on Saturday that it would buyback 11.3 crore shares or 4.92 percent of equity capital at Rs 1,150 apiece. The company will be spending Rs 13,000 crore for the same.

The company further said that the buyback represents a premium of 17.73 percent and 17.92 percent on BSE and NSE, respectively, over the closing price of the stock as of August 16, 2017, the date of intimation to the exchanges of the board meeting to consider the proposal of the buyback.

The buyback price is at a steep premium of 24.5 percent from Friday’s closing price of Rs 923.25 on the NSE. The stock hit a multi-year low of Rs884.20 on Friday when Vishal Sikka decided to press his exit button from the company.

Interestingly, Vishal Sikka's resignation wiped out Rs 22,521 crore from Infosys' market cap on Friday which was more than the size of the buyback which is Rs 13,000 crore.

“Investors must positively tender their shares for a buyback. The sector is facing tremendous headwinds and the companies Infosys included are navigating an environment where growth is a challenge, margins are under pressure and regulatory environment in their key markets is hostile,” Ajay Bodke, CEO & Chief Portfolio Manager (PMS) at Prabhudas Lilladher Pvt. Ltd told Moneycontrol.

“With an anemic earnings growth estimated in the medium term, it's an opportunity that investors should take advantage of. Secondly, the acrimonious tussle between the Board and founders will continue to fester and act as an overhang on any new CEO distracting the management from focusing on transforming the franchise from old legacy businesses to newer ones. This makes it doubly necessary to leverage on the buyback offer,” he said.

The buyback is a way of rewarding shareholders in an efficient and cost-effective manner. A buyback allows companies to invest in themselves.

Buyback leads to a reduction of the number of shares outstanding on the market, which in turn increase the proportion of shares a company owns.

Another compelling reason for investors to go for the buyback apart from the steep discount is the acceptance ratio which is close to 5 percent compared with nearly 3 per cent for TCS and HCL Tech’s buyback offers.

The acceptance ratio indicates how many shares the company will be able to accept in a buyback offer for every 100 shares tendered by shareholders. Higher the ratio, better it is.

“For the safe side one can participate in the buyback,” Sanjeev Jain, AVP - Equity Research at Ashika Stock Broking Ltd told Moneycontrol.

“Confrontation among the Infosys’s founders and Mr. Vishal Sikka over the past several months has indicated that Mr. Sikka resignation may happen in future, but it happened soon is a shocker for the market, which is clearly reflected in its share price,” he said.

Best to invest in other IT names:

Infosys saw 3-year high volumes in Fridays’ session while it hit a multi-year low of Rs 884.20 on the NSE. A move below the highest Put base and 10-month support of 900 can further pressurise the stock.

During Sikka's tenure, the company’s stock jumped 22 percent from Rs 835.33 on August 1, 2014, at close to Rs 1,020.85 on Thursday.

For Infosys, things are likely to get worse before it even starts getting better. It will be in the interest of employees to either tender their shares in the upcoming share buyback if it comes at an attractive valuation or book profits and invests in companies which can outperform the index, suggest experts.

“I would strongly recommend investors to tender shares in the Infosys buyback announced on Saturday as the stock is unlikely to outperform the index on a sustained basis given its sluggish price performance over the last few months,” Kunal Saraogi, CEO at Equityrush.com told Moneycontrol.

“The fact that the tech major faces stiff resistances on the charts, first one being at Rs 1020 levels. The recent corporate contretemps further reduce the stock's attractiveness. Investors would do well to cash their chips on Infosys and look to invest elsewhere,” he said.

A.K.Prabhakar, Head -Research at IDBI Capital advises investors to exit from Infosys and shift to TCS, HCL Technologies or Tech Mahindra. “We also like TATA Elxsi, Persistent and Cyient are few stocks which can be looked upon,” he said.