USE BUYBACK TO EXIT STOCK, ADVISE ANALYSTS
At a time when investors were expecting Infosys to spell out the detailed terms of its proposed stock buyback programme on Saturday, Vishal Sikka resigned as managing director and chief executive.
Earlier in 2017, Infosys had unveiled plans to reward its shareholders by way of a buyback and dividend payout totalling ~13,000 crore. Sikka’s resignation sent the stock plummeting — down 13 per cent in intra-day deals on the BSE to ~884. It, however, settled 9.6 per cent lower at ~923. By comparison, the benchmark S&P BSE Sensex slipped 0.9 per cent or 271 points to 31,524, and the S&P BSE information technology index lost 3.5 per cent to 10,082.
Markets, analysts say they were taken completely by surprise at the development, coming a day ahead of the board meet to consider the proposed buyback. The bid dilemma now, they say, is getting a replacement for Sikka. There are not many choices internally, with the several key personnel exits in three years. It is equally a challenge to find an external candidate, given the way things have been.
“I am not surprised by the move, given the pressure he (Sikka) has been going through but I am shocked at the timing of his resignation. The development comes a day ahead of the board meet to spell out the proposed buyback terms and all the shareholders were expecting some good news from the management. Investors should tender their shares if the buyback price is above ~1,000 a share,” says G Chokkalingam, founder and managing director of Equinomics Research & Advisory.
Ambareesh Baliga, an independent analyst, feels the timing of the resignation a day ahead of the buyback is intended to cushion any major negatives that could arise from the development.
“Whatever said and done, we have the buyback happening now. I think the buyback was announced to cushion the development. Sikka’s exit is not a development that has happened overnight. It must have been planned days in advance and because of this, Infosys announced the buyback in a hurry. I think investors should tender their shares in the proposed buyback,” he says.
In a report last month, analysts at Nomura had questioned the delay in implementing the buyback proposal. They'd suggested three possible reasons — approval from multiple regulators, foreign institutional investor holding and procedural differences.