The Infosys board is likely to consider a proposal for a second share buyback of $1.6 billion very soon to boost investor sentiment. Some founding family members could tender their shares in the exercise. Infosys is coming off a one-year moratorium for the previous share buyback that ends in December. Sources told TOI that the buyback announcement could be part of the board resolution when it meets on January 11 to consider the audited quarterly financial results.
An email sent to Infosys on the upcoming share buyback didnt elicit a response till the time of going to press. The companys successive buyback, subject to shareholder approval, could be executed much faster this time around as the IT services giant voluntarily delisted its American depository shares from the Euronext Paris and Euronext London exchanges in March.
Recurring buybacks help reinforce investor confidence, according to Wedbush Securities managing director (equity research) Moshe Katri. “But given the uncertain times (global macro headwinds, political instability, etc) which historically impacted IT spending patterns, investors are likely to approach this segment more cautiously,” he said.
Sources said the share buyback could happen at around 20-25 per cent premium to the prevailing market value, though this could not be ascertained by this newspaper independently. Infosys shares had ended over 3 per cent up at Rs 646 apiece by close of Fridays trading on the BSE. A share buyback, or a higher dividend, usually suggests that the management feels the company is undervalued.
The Infosys board had said it will return approximately Rs 2,600 crore ($400 million) through a special dividend of Rs 10 per share. It also identified Rs 10,400 crore ($1.6 billion) to be paid out to shareholders for the 2019 financial year in a manner decided by the board, subject to applicable laws and requisite approvals.
Infosys had returned one-third of cash, or up to Rs 13,000 crore ($2 billion), to shareholders at Rs 1,150 apiece during the previous financial year.
After the first buyback, Susquehanna International Group senior fintech research analyst James E Friedman had said it would result in a decrease of $160 million of interest income per year ($40 million per quarter). Last time, out of the 19 members of the promoter group, only 16 tendered shares. Three — co-founder S D Shibulal, his daughter Shruti, and another co-founder Kris Gopalakrishnans daughter Meghana — did not participate in the buyback programme.
Theres a growing clamour among shareholders to look at a tax-efficient way of returning cash to shareholders and a buyback is by far the most optimal way of keeping shareholders in good humour. TCS, Wipro, Cognizant, HCL Technologies and Mindtree have all unveiled share buybacks in the recent past.
Investors have been questioning inefficient capital structures as some of the large IT firms, sitting on bulging cash reserves, shied away from making big-ticket acquisitions. Last fiscal, Infosys recorded cash flows of $2 billion and 25 per cent return on equity. Its free cash flow expanded 40 per cent between fiscal years 2015 and 2018.