Infosys, the country’s second largest software services company, is understood to be considering a buyback of shares worth $1.5-2 billion from the open market to shore up investor confidence.
In another development, the company’s former CEO, Nandan Nilekani, is emerging as the consensus candidate to head Infosys again.
One of the reasons for a possible buyback could be that the management wants to send a strong message to the investor community. It will also reduce the volatility in the company’s stock.
If for any reason the board decides not to go in for a buyback, it might look at returning a large portion of the $4.5 billion or so it holds in cash and equivalents through dividends, market sources said. Analysts have pointed out that sitting on such a huge cash pile neither benefits the company nor its shareholders as it does not earn them enough returns.
The offer price for the buyback is expected to be considerably higher than the current market price of the Infosys stock. According to SEBI norms, the buyback period can stretch up to six months and is expected to include ADR holders as well.
An Infosys spokesperson declined to comment on these developments. “We do not have any comments to offer on these rumours,” said the spokesperson.
The Infosys stock closed at ₹3,178.75, which was 3.64 per cent higher than its previous closing price. The IT index closed at 5,065.05, rising 1.25 per cent, while the Sensex ended flat at 25,473.89.
Infosys’ trading volume on the NSE on Wednesday was substantially higher, at 25.46 lakh shares, as against the seven-day average of 15 lakh shares.
Even the Infosys ADR is trading firm on the New York Stock Exchange. After surging to $54.57, it was trading at $54.11 (at 8.20 pm IST), 3.6 per cent over the previous day’s close.
If the buyback goes through, it will be one of the largest in corporate India’s history. Further, the total worth of shares bought back by all Indian companies during the last fiscal year was ₹4,400 crore, according to a Prime Database report.
The buyback may not impact promoter shareholding in the company. As of March, 2014, the promoters held 18.99 per cent in the company, mutual funds and insurance companies held 16.23 per cent, and foreign institutional investors, over 50 per cent. Retail investors along with NRIs and trusts hold 14.54 per cent.
Employees’ choiceAs earlier reported by Business Line , the possibility of Nilekani coming back as CEO started gaining currency after Infosys employees started posting on in-house bulletin boards that they would prefer him rather than anyone else leading the company forward during this difficult phase.
When co-founder Nilekani was CEO, Infosys tripled its revenues to ₹9,028 crore while profit margins reached a high of 27.15 per cent at the end of the 2006-07 fiscal year.