Infosys on Saturday announced its first-ever share buyback programme at a price of Rs 1,150 per share, amounting to Rs 13,000 crore.
Infosys on Saturday announced its first-ever share buyback programme at a price of Rs 1,150 per share, amounting to Rs 13,000 crore. This accounts for 4.92% of the paid-up share capital. The buyback price is a premium of 19.08% taking into account the volume weighted average on the BSE in the past three months. The issue size will be 113,043,478 (11.30 crore) shares and buyback will be done through a tender offer on a proportionate basis. Infosys joins the list of its peers like Tata Consultancy Services, Wipro and HCL Technologies in coming out with such an issue. This announcement comes just a day after its CEO Vishal Sikka resigned and the Board made very critical observations against founder NR Narayana Murthy. The buyback issue will be open to all shareholders, with the company being listed on the Indian stock exchanges, New York Stock Exchange, Euronext London and Euronext Paris.
Infosys had already announced a capital allocation strategy of disbursing `13,000 crore back to the shareholders. The process of announcing the buyback was getting delayed, as it had to seek multiple regulatory approvals across geographies.
There has been a clamour from certain sections of shareholders to return a part of the cash reserves the company had held. Infosys, at the end of the June quarter, had a cash reserve of Rs 39,335 crore. At the end of the first quarter of FY18, the cash generated from operational activity was Rs 4,151 crore, while the operating cash flow was Rs 3,598 crore. The operating cash flow as a percentage of net profit remained over 100% for the fourth quarter in a row. The yield on cash for the quarter was 7.07%.
Some market observers were a bit disappointed over the buyback price, though they felt it was overall a positive development for the investors. However, the moot question is whether the promoters of the company, who hold 12.75% stake, will participate in the offer considering their strained relationship with the board. However, their participation in the buyback issue is unlikely to alter the shareholding structure, as the whole size accounts for under 5% of the company’s market capitalisation.
Infosys has formed a buyback committee headed by co-chairman Ravi Venkatesan with vice-chairman Vishal Sikka and interim CEO Pravin Rao being part of it. Buybacks appear to have become the preferred route for companies to return wealth to shareholders, especially since dividend income of over Rs 10 lakh per annum is taxable at 10% in the hands of all residents, domestic companies, trusts or funds, except those established for religious, educational or charitable purposes.