Infosys - Company Update - Share Buy-back – Increasingly Attractive with Higher Acceptance Ratio
Infosys
announced a share buyback on August 19, 2017 under which it will buy
back 113mn equity shares at a price of Rs1,150/share, which is at a
substantial ~32% premium to the CMP. This will lead to a cash outflow of
Rs130bn,
which is ~39% of the IT major’s cash balance. In our view, the buyback
proposal is attractive for retail investors with holdings up to Rs0.2mn.
As per SEBI Regulations, 15% of buyback is reserved for this category
of investors, which implies that ~17mn shares in the buyback will be
reserved for them. Assuming 100% of these shareholders tender their
shares, the acceptance ratio will be ~59% (total holding of ~28.7mn
shares). As acceptance ratio increases, individual/retail investors who
tender their shares will earn more profit, ranging from Rs16,000-22,000
(19-25%), assuming the buying price
is the CMP and investors sell their remaining shares at the CMP.
Outlook & Valuation
Looking ahead, we believe the stock could see some support at lower levels owing to the
buyback, even as the near-term outlook remains hazy following the exit of Dr. Sikka. In our
view, medium-term performance will depend on the IT major’s ability to prevent any major
loss or leakage of client business. We have a BUY recommendation on the stock with a
Target Price of Rs1,080.
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