MOSL: INFOSYS (Buy)-The uncertainty discount over buyback premium-Duality of Founder-Board feud and CEO hunt overshadow valuation

​Infosys: The uncertainty discount over buyback premium; Duality of Founder-Board feud and CEO hunt overshadow valuation attractiveness

(INFO IN, Mkt Cap USD31.2b, CMP INR874, TP INR1030, 17% Upside, Buy)

• Following the turn of events over last week (CEO resignation, the pointed attack on the founder by the Board and consequent announcement of buyback) - the fall in INFO's valuations (14% in two sessions) may be stemmed amid the buyback.
• That said, return of business stability may be prolonged till INFO is settled on dual fronts of: [1] New CEO search, and [2] Peace between the current Board and Mr. Narayana Murthy, amid what is a battle out in the open. Given that Panaya acquisition and the associated corporate governance issues have been at the center of the saga, we believe there may be calls for significant Board changes as well.
• These factors may limit upside in INFO despite attractive valuations. Our price target of INR1,030 (15x forward earnings) implies a 17% upside, driving our Buy rating. We will revisit the same as developments around the differences and appointment of the new CEO unfold.

Back to square one with the exit of Dr. Vishal Sikka

#1: A call for changes to the Board?

• At one end, the handling of matters related to corporate governance around the Panaya acquisition and the severance concerning Rajiv Bansal/David Kennedy have raised ire among founder investors. Consequently, there has been a call for a change in the Board’s composition.
• On the other hand, the remaining minority investors have suffered from the unending saga. They would have hoped that the Board nips the problem at its bud before it balloons to the proportion beyond repair. However, this did not happen. Thus, albeit for different reasons, a collective call for a series of changes is an understandable possibility following today’s developments.