Infosys’ share buyback could amount to about `8,700-9,500 crore, according to analysts going by historical trends. India’s second largest IT services provider will consider a buyback proposal when its board will meet on October 13.
Infosys has typically returned around 30% of its net cash balances via buybacks. Analysts at Jefferies estimate the IT major had cash balances, on its books, of a little over `40,000 crore at the end of September. This suggests a buyback in the range of `8,700-9,500 crore, excluding the buyback tax.
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The Bengaluru-headquartered firm has, in the past, taken the open market route, setting the maximum buyback price at a premium of 17-25%. Given the current market price is ruling at around `1,425, this would imply a buyback price in the range of `1,630-1,750. However, the blended buyback price in the previous ones has been 6-7% lower than the maximum buyback price.
From 2019-20, Infosys had enhanced its capital allocation plan, saying it would return 85% of the free cash flow cumulatively, over a five-year period, via buyback and dividends. Analysts pointed out, before the company’s announcement on Monday, that if the the IT major is to fulfill this objective, it needs to come up with a buyback soon.
Technology stocks have been beaten down by the market, which believes revenue growth could decelerate in the wake of a global slowdown. A buyback, therefore, could help shore up the stock price. The Infosys stock closed Tuesday’s session at `1,423.90, down 2.65% on a day when the Sensex crashed by nearly 850 points. The 52-week high for the stock was `1,953.70.
In October 2021, Infosys bought back over 55.8 million equity shares as part of a `9,200-crore buyback offer. The shares were bought back at a volume weighted average price of `1,648.53 per share, according to a public notice.
Over the past 10 years, the payout ratios for top five IT players have more than doubled from an average of 40% over FY13-17 to 85% of profits over FY18-22.
Analysts at Jefferies wrote, this has been partly driven by a “higher willingness to pay out more and partly by an increase in FCF conversion from 74% to 90% during this period”. Consequently, cash payouts have formed a sizable 20% of total return for large IT firms since March 2017. Alongside higher payouts, IT firms have started returning nearly 50% of cash payouts through buybacks. Among the larger IT firms, buybacks formed nearly 20% of total return for Wipro since March 2017.