Infosys may be running out of options to utilise its huge cash reserves, which may force the IT major to follow the footsteps of rivel TCS, which announced the country’s biggest buyback ever.

Analysts and sources within Infosys whom BusinessLine spoke to, said opportunities to invest or acquire another company have come down to a large extent because of less choices around.

V Balakrishnan, former Infosys CFO, told this paper that the argument that Infosys should conserve cash and instead scout for acquisitions, was not valid. “There are no large companies to buy in the traditional business which are fast getting commoditised. Therefore, no one is going to buy them,” he said.

The former Infosys CFO added that there are no big companies in the digital space either, and even medium-sized ones carry huge valuations. To buy them and then get good returns takes time and huge effort, he pointed out.

It is at this juncture that some shareholders believe that a buyback is needed, said TV Mohandas Pai, former Infosys CFO. “When growth slows down and there is too much cash, shareholders will ask what are they doing with the cash and most Boards respond with a buyback to show confidence in the company,” he said.

Analysts’ view Brokerage analysts said that in the backdrop of recent questions raised around Infosys’ capital allocation policy by the founders and some shareholders, India’s second largest software exporter may be forced to consider a better way to reward shareholders and investors.

The IT major is sitting on a $5.25 billion cash pile.

Some industry watchers believe that Infosys may consider a proportionate tender offer to existing shareholders with a premium in the range of 12-15 per cent from its existing share price.

Infosys did not comment but sources in the company said that just because other companies have gone for buyback does not mean the company will follow suit. “This will not be a trigger but they are aware of the pressure on shareholder return which has been on for a while,” said a brokerage analyst who did not wish to be named.

Large sized Indian IT companies which have been sitting on billions of dollars in cash are being forced to reward shareholders, especially at a time when growth is slowing.

Cognizant announced a $3.4 billion buyback of shares a couple of weeks back, which was followed by TCS, which said that it is looking at a buyback of $2.3 billion (₹16,000 crore). Last week, industry body Nasscom said that the IT industry will grow at 8.6 per cent in the 2017 fiscal, which is the lowest it has grown since the last five years.

According to Madhu Babu, Research Analyst, Prabhudas Lilladhar, Infosys will be under pressure to do a buyback. Currently, its stock is trading at ₹1,012 and has 22.9 crore (2,29,69,44,664) shares as paid up share capital.

However, Infosys has never been too aggressive on dividend payouts or buybacks as they were typical signs of a company not having investment and growth avenues. The IT major follows a policy of paying annual dividends up to 50 per cent of net profit.

Policy revision In the last fiscal, Infosys paid paid out 49.7 per cent as dividends amounting to ₹5,570 crore, on the back of strong performance. In the 2015 fiscal, Infosys paid dividends of ₹5,111 crore. An Infosys spokesperson have revised our capital allocation policy twice in last three years- from 30-50 per cent.

Infosys, which is going through a rough patch, has lowered its full year dollar revenue guidance to 7.2-7.6 per cent from 7.5-8.5 per cent earlier and rupee revenue guidance to 10-10.4 per cent from 10.9-11.9 per cent.

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