After several months of deliberation, Infosys is considering a buyback, which analysts opine could be one of the biggest among its peers.
India’s second-largest software exporter announced its buyback plan, but did not specify the number of shares that the company intends to buyback from investors.
Market watchers are going with the number of ₹13,000 crore, which Infosys had indicated in the past, with each share being considered for buying back worth ₹1,100-1,200 a piece. Infosys board will consider the buyback proposal on Saturday, the company said in a filing to the exchanges.
If the software major goes ahead with the buyback at the price mentioned above, it will be 20 per cent premium compared with the value of shares at the end of trading on Wednesday. On hearing the news, Infosys stocks closed at ₹1,021, a 4.5 per cent increase compared with the previous day’s close.
Buyback season The development comes close on the heels of TCS concluding a ₹16,000-crore buyback, which was tendered at a 12.2 per cent premium. Similarly, Wipro has approved a ₹11,000-crore buyback, and HCL Tech a ₹3,500-crore one. In March, Cognizant announced a $1.5-billion share buyback, which set the tone for rewarding investors with excess cash in the books, at a time when the industry is slowing down.
Buybacks are a better way to reward shareholders, as paying dividends attract a 15 per cent dividend distribution tax, with other cess added on.
If the buyback goes through, Infosys, which has cash reserves of $6.1 billion, should see these reserves come down by 30 per cent, according to analysts at Motilal Oswal. Also, according to Urmil Shah of IDBI Capital, if the buyback amount is ₹13,000 crore, that would result in a buyback in the range of 4.9-5.2 per cent of the share capital. This buyback is on top of the dividends payout, which the company has increased up to 70 per cent of free cash generated, a change from 50 per cent net profit payout which it had been following in the past.
Infosys has been considering a buyback for some time now; but in the last quarterly results, CFO Ranganath D Mavinakere said it is in the process of seeking regulatory approvals across India, the US and Europe.
Exit opportunity Analysts also believe this could be a good exit opportunity for retail investors. “This is a good exit point for retail investors who can look at other opportunities as the sector is going through a bad phase and at a time when the company is mired in a showdown between its founders and the board,” said an analyst from a leading brokerage house in Mumbai who did not wish to be named.
Others like Edelweiss analyst Sandip Agarwal said this move is not an outcome of lower growth, instead points to possibilities of large acquisitions going ahead and consistent generation of cash.
The buyback also raises questions on whether the management, founders and Infosys insiders should be either barred from selling their stock or a cap put on the amount they sell. “If price discovery has to happen, this has to be done,” said Mohan Lavi, a Bengaluru-based chartered account.