Begins talks on utilisation of $5.2-bn cash reserves
India’s second-largest IT services exporter Infosys has started holding discussions with few of the leading investment banks to decide on the various options for utilisation of its cash reserves of $5.2 billion, with a share buyback being the most preferred option. JP Morgan is one of them, people familiar with the developments told FE.
It is understood the various options being discussed include a fresh capital allocation strategy. Infosys, which is in the midst of a controversy of alleged corporate governance lapses, has also received demands from a few notable investors to go in for a buyback to enhance shareholder value. There would be an increased pressure on Infosys to evaluate the option of a buyback considering that its peers like Wipro and Cognizant have already done it, and now Tata Consultancy Services (TCS) will decide on the same on February 20.
In response to an e-mail query from FE, the company said, “Infosys 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.”
At a recent investor call, Infosys CEO Vishal Sikka, queried about a likely buyback or a one-time dividend, said, “None of these options is off the table. The key is to ensure that we are looking at exercising the cash in a way that provides the most advantage to the shareholders.”
The issue of buyback has been hovering over Infosys for quite sometime now. In 2014, two former board members of Infosys — TV Mohandas Pai and V Balakrishnan — had sought a buyback of R11,000 crore to enhance the shareholder value.
Cognizant recently announced that it has approved a plan to return $3.4 billion to shareholders over the next two years through share buybacks and dividend payout. This came out following a letter from one of its investors, Elliott Management, which had articulated that Cognizant’s shares were undervalued.
A few of the shareholders had argued that Infosys would not require the huge cash reserves considering that the IT industry has slowed down to single-digit growth rate and the company is unlikely to have plans to go for multi-billion-dollar acquisitions.
Sikka, during the investor call, had said, “The board from time to time will consider capital allocation policies. In the last four years, we have reviewed twice, we have improved dividend payout, once from 30 to 40% and then again from 40 to 50%.”