Cognizant chief encashed Rs 110 cr shares before exiting

The market and the industry were surprised by the recent announcement that Cognizant' Technology Solutions' founder chairman and CEO Kumar Mahadeva was retiring at the relatively young age of 52.

But analysis of how the New Jersey-based Mahadeva has been consistently selling his stock in the market would reveal that it is a carefully managed exit.

In the last six months, Mahadeva sold a whopping $25 million of his stock, filings with US Securities and Exchange Commission show.

Although Mahadeva is known to de-risk his stock holding in Cognizant by selling a reasonable number of shares every quarter, the last two quarters saw some unusually high volumes.

He sold about $25 million (roughly Rs 110 crore) worth of shares _ about $15 million in the September-ended quarter and another $10 million in the recent quarter till date.

That Mahadeva has a lot of trust in the company and its management depth also comes out when one takes into account the fact that he has close to $50 million still left as stock options in Cognizant.

Corroborating this an analyst with foreign brokerage UBS Investment Research points out, "Presumably, while Mahadeva's personal wealth has enabled him to retire at a relatively young age, we believe he still has about $50 million in options on the table, and the timing of his retirement decision also reflects substantial confidence in the new team."

"In hindsight, there seems to have been clear indications that Kumar was thinking of his retirement, if his stock-transactions are anything to go by," an analyst points out.

Cognizant seems to have planned its succession process very well. "Planning for leadership succession is a natural part of the sound operations of a business. This is part of a structured succession process, drawing on the strengths of the executive management team that has been running Cognizant together over the last seven years," said President & CEO Lakshmi Narayanan.

While the retirement timing took many by surprise it seems to have made sense for a number of reasons.

"Given that this is a traditionally a quiet time of year, it allows us to complete the transition with minimal disruption. Having already worked together as a team on formulating budgets and the strategic plans for 2004, undertaking the changes at this time allows the new team to be fully in place for the start of the New Year," Lakshmi Narayanan told Business Standard.

Additionally, Cognizant looks all set to continue its industry besting performance. The company has announced plans to recruit 4,000 more employees next year to take its headcount to 13,000. Cognizant recruited about 2400 professionals in 2002 and 3000 in 2003.

If one were to extrapolate the recruitment numbers and read in revenue terms, Cognizant's revenue is expected to grow by at least over 40 percent in 2004.