The Board of IT services bellwether, Infosys Limited on October 13, approved a share buyback program amounting to Rs 9,300 crore through the open market route. This is the fourth buyback announced by the company since its listing in 1993.
The maximum price set for this buyback is Rs 1,850 per equity share having face value of Rs 5 each and is subject to the approval of the members of the Company by way of a special resolution and all other applicable statutory/ regulatory approvals.
This will constitute 14.84 percent and 13.31 percent of its total paid-up capital and free reserves as on September 30, 2022 (on a standalone and consolidated basis, respectively).
At the maximum buyback price, the possible maximum number of equity shares bought back would be 50,270,270 shares, which will comprise approximately 1.19 percent of the paid-up shares of the company as of September 30, 2022 (on a standalone basis).
The company has also informed that it will be utilizing at least 50 percent of the amount of the maximum amount fixed for the buyback i.e. Rs 4,650 crore.
Infosys has allowed the holders of its American Depository Shares (ADS) to convert their ADS into equity shares and participate in the buyback if they intend to by opting to sell those shares on the Indian stock exchanges.
Infosys’ cash and equivalents at the end of the June quarter stood at Rs 14,869 crores.
As a policy, Infosys returns 85 percent of its free cash flow to investors through dividends and share buybacks over a five-year period. A share buyback is seen as an alternative, tax-efficient way to return money to shareholders.
Amid growing concerns of a slowdown in major markets of the IT services industry, investment opportunities have become limited for the time being which has forced companies to find other avenues to reward shareholders, said the analysts tracking the company.
Now, since the clarity has come about the terms of the buyback, it will be interesting to see the stock’s reaction tomorrow. It is worth noting that during the previous buybacks which the company had completed in 2021, 2019 and 2017, Infosys's stock rose between 10-22 percent from the date of announcement to the completion of the buyback. The stock had outperformed the Nifty IT index on 2 of these past 3 occasions. Also, according to a report from the global research firm Jefferies, the stock price had touched the maximum buyback price during previous two buybacks.
Like this time, the company had opted for the open market route in the last two buybacks as well. The option of purchasing shares through open markets works in favour of the companies as the stock can be bought at the prevailing market price. However, for the shareholders of the company, the option of ‘tender offer’ works better as the buyback through this route might offer them a premium to the current market price.
The last two buybacks done through the open market took around five months to complete.
Experts are of the opinion that the share buyback should support the stock price amidst the prevailing uncertainty.
Meanwhile, Infosys also reported a consolidated net profit of Rs 6,021 for the quarter ended September 30, 2022, up 11.1 percent from Rs 5,421 core reported in the same quarter of the previous year.
Revenue from operations stood at Rs 36,538 crore, clocking a 23.4 percent growth over Rs 29,602 crore in the Q2FY22,
Sequentially, revenue grew 6 percent while net profits rose 12.3 percent over the previous quarter.
Infosys closed Rs 8.8 down at Rs 1420 on October 13 on the National Stock Exchange. Amid the prevailing uncertain scenario engulfing the IT sector, the stock has generated negative returns of ~17 percent during the past one year and is down 8 percent in the past one month.
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