Close on the heels of its larger rival Tata Consultancy Services concluding a Rs 16,000 crore share buyback Infosys has said it will consider a share buyback, 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.
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. Infosys shares surged on the news, rising as much as 4% on Thursday morning to the day’s high of Rs 1,015 on BSE.
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.
— CNBC-TV18 News (@CNBCTV18News) 17 August 2017
Infosys shares have underperformed the benchmark indices, more so in the face of the recent challenges being faced by the Indian IT industry in the form of visa restrictions in the US and other nations, clients shrinking their IT spends and narrowing margins. While the BSE Sensex has gained 14% in the last two years and 13% in the last one year, Infosys shares have lost 14% in two years and 13% in the last one year (excluding Thursday’s gains).
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.
Shareholders and investors are pressing upon the Indian IT companies to use their huge reserves to distribute cash to them, as opportunities for huge spurts of growth or bulk cash outgo seem unlikely. Infosys’ smaller rival Wipro — the third largest IT firm in India — too is reportedly considering rewarding shareholders by distributing cash through a share buyback, which may amount to Rs 3,000-4,000 crore, topping the size of its last share repurchase in April 2016.