Infosys is learnt to be working on three-point formula, including a buyback, as it looks for a closure to a week-long strife between the founders and the board. But the buyback may not happen immediately, analysts BusinessLine spoke to said.
“Infosys will work on its capital allocation policy and the probability of a buyback could be some time in fiscal year 2018,” said Urmil Shah, IT analyst, IDBI Capital.
Stating that the board’s statements augurs well, Shah said it remains one of their top picks.
As per the formula, Infosys is expected to put together a buy-back plan though the exact amount is still being worked out, but sources say it could be anywhere between $1.5 billion and $2 billion. Infosys has of now cash and cash equivalents of about $5.25 billion. The buyback plan has gained currency after Infosys is learnt to have hired J P Morgan to manage the capital allocation. Sources also said that with TCS planning a buyback, it would put pressure on its peers to go in for a similar exercise.
Infosys could also look at a dividend payout, though it remains to be seen whether it will be the considered as the first option.
With the IT major hiring law firm Cyril Amarchand Mangaldas to resolve corporate governance issues, a formal channel of communication will be opened to interact with the founders.
There is also a possibility of one of the board members being given the task of helping with the process of communication. Infosys may also consider inducting a couple of technology experts into the board, something it which Infosys has been unable to do so as for sometime now.
A spokesperson for Infosys said it has a clear, defined capital allocation policy which is periodically reviewed by the board. “We have increased the dividend payout twice in the past 3 years as a result of this process. The board and the management will continue to review the policy and take a decision at an appropriate time.”
For most of the week and earlier, Infosys founders and two former CFOs have repeatedly raised issues of corporate governance resulting in the company chairman and other board members holding a press conference to clarify its stand.
“The entire issue has been all about poor communication. But once these steps are taken, hopefully all the controversies will die down,” Prabal Basu Roy, a Sloan Fellow from the London Business School who currently manages a PE fund, said.
Roy, who has worked as a director and group CFO in various companies earlier, said that a buyback is a better option from the tax perspective than a stock dividend payout.