Infosys hints for buyback of shares in near term, here's what you need to know
Motilal Oswal said, “Infosys is the only remaining company among the top-tier that is yet to reward its shareholders with a buyback, dispensing some of the idly-lying cash.”
After TCS' buy back plan, analysts and industry experts trained their eyes towards IT behemoth – Infosys to follow the suit.
While announcing Q4FY17 (January 2017 – March 2017) result, Infosys finally hinted towards a buy back measure for its shareholders in near term future.
In a BSE filing, Infosys said, “The board has identified an amount of upto Rs 13,000 crore ($ 2 billion) to be paid out to shareholders during financial year 2018, in such manner (including by way of dividend and/or share buyback), to be decided by the board, subject to applicable laws and requisite approvals, if any.”
Analysts at HDFC Securities said, “Infosys management has goofed up in managing the investor and promoter expectations of a buyback. Unless Sikka and his team pull out a real rabbit in the form of a higher guidance or fall in line with the investor expectations of returning some cash, Investors are likely to move on to more investor friendly companies."
Infosys reported consolidated net profit of Rs 3,603 crore for the quarter ended March 31, 2017, registering sequential growth of 0.2% year-on-year (YoY) but decline of 2.8% quarter-on-quarter (QoQ) basis.
Before Infosys' Q4 result announcement, Motilal Oswal said, “Infosys is the only remaining company among the top-tier that is yet to reward its shareholders with a buyback, dispensing some of the idly-lying cash.”
Liquid assets including cash and cash equivalents and investments for Infosys stood at Rs 38,773 crore by end of March 2017, a rise of 12.48% versus Rs 34,468 crore in the corresponding quarter of previous year.
Also, there has been 8.61% increase in liquid assets as against Rs 35,697 crore in December 2016 quarter.
In FY17, Infosys' competitors TCS and Wipro increased standard of buyback market by spending large amount.
On February 20, 2017 TCS decided to buy back 5.61 crore equity shares or 2.85% of the company's total capital at Rs 2850 per share. The total spend for this activity will be around Rs 16,000 crore thereby making it the largest share buyback in the history of India Inc.
Last year on April 26, 2016, Wipro announced buy back of 4 crore equity shares at a premium of Rs 625 per share accounting to 1.62% of the total shares outstanding. The measure cost Wipro Rs 2500 crore making it third largest buy back among private companies.
Share buybacks have become a new thing with India Inc in FY17, taking it to a 18-year high.
Data compiled by Prime Database suggested, as on January 31, 2017, a total of 33 share buybacks were made with companies spending about Rs 28,460 crore, highest since 1999. In FY16, share buybacks amounted for Rs 1,834 crore.
A share buyback improves return on equity (RoE) of the company for its shareholders.
Pranav Haldea, Managing Director of PRIME Database, said, "Buyback has become a more profitable way to return money to shareholders than dividend, after changes were made to the dividend tax policy."
Idle cash in companies balance sheet effects return ratios. While there is also pressure from shareholders as stocks haven't performed well. Hence, cash being returned to them via buyback.
Haldea added that the promoters want to give temporary support to share price. Through buyback, the supply of the share in the market is reduced which leads to higher price.
Due to Q4 result, Infosys share price have gone down to over two-months low, trading at Rs 928 a piece down Rs 42 or 4.22% on NSE at 1448 hours.
Sanjoy Sen, Doctoral Research Scholar, Aston Business School said, "The overall approach with shareholders appears to be to request their patience with interim payouts while the impact of these factors are progressively addressed in the medium to longer term."