The Infosys share buyback maybe priced at up to Rs 1,200 per share say industry analysts. Yesterday, India’s second largest information technology services company Infosys Ltd has said it will consider a proposal for buyback of equity shares of the company later this week at its board meeting on Saturday, 19 August. Analysts say that the buyback provides a good exit opportunity for the retail investors. The share closed at Rs 1,021 up 4.7% since previous close.
Earlier, the larger rival TCS (Tata Consultancy Services) had announced a buyback at an attractive premium of 12.2 per cent. According to Rajat Sharma of Sana Securities, “The price of the buyback is likely to be Rs 1,200. If you see the trend, TCS had announced the buyback in the 10-15% premium range. Going forward, the company is unlikely to announce any dividend.” Another analyst, who did not wish to be identified told FE Online that the stock provides a safe haven for retail investors for want of other opportunities, as the markets currently look stretched. Buybacks are a better way to reward shareholders, as paying dividends attracts a hefty dividend distribution tax, said the analyst.
Infosys has a massive $5.25 billion (nearly Rs 34,000 crore) stash of cash, and it is looking for ways to return a part of it to the shareholders, in absence of other productive uses for it. Earlier April, Infosys said that the management has identified $2 billion (or about Rs 13,000 crore) to be paid to shareholders via share buybacks or dividends.
The company said it expects to pay out up to 70% of free cash flows. At the time, Infosys also announced a dividend of Rs 14.75 per share. Infosys did not disclose details of the proposed share buyback in the intimation sent to the stock exchanges on Wednesday, however, previous news reports have pegged its size to be at around Rs 16,000-17,000 crore. Sharma believes that post buyback, the company may resort to inorganic acquisitions to utilise the excess cash.
Infosys amended its Articles of Association earlier this year, adding provisions to enable it to buy back its shares, lending further credence to the news about the company mulling a share buyback worth up to $2.5 billion (Rs 17,000 crore), specially as opportunities for huge spurts of growth dry up for Indian IT companies.