Infy announces buyback worth Rs 13,000 cr at price of Rs 1,150 per share

The board of India’s second-largest IT company Infosys on Saturday approved buyback worth Rs 13,000 crore, at a premium of 19.08% and 18.70% over the weighted average market price on BSE and NSE respectively.

The board, in its first meeting after the resignation of its CEO and MD Vishal Sikka, approved the buyback offer. This is said to be the first-ever share buyback offer in its 36-year history.

The company will purchase 11,30,43,478 equity shares at the rate of Rs 1,150 per share. The company is offering a premium of 19.08% and 18.70% over the weighted average market price over past three months on BSE and NSE respectively.

“The buyback offer size is 20.51% of the total paid-up equity capital and free reserves of the company, as per the latest audited balance sheet,” company said in a filing to BSE.

According to the industry analyst, the share buyback has been a long-standing demand by some of the founders and former executives, who have been demanding Infosys to return surplus capital to its shareholders.

In the buyback, the ‘offer to sell’ for shareholders will be made through Tender Offer Documents to both equity shareholders as well as American Depository Services (ADS) holders.

The IT major, sitting on a pile of cash reserves, had said in its earnings statement for the quarter ended March that its board identified an amount of up to Rs 13,000 crore, or $2 billion, to be paid out to shareholders through dividend or share buyback in 2017-18, as per its Capital Allocation Policy.

Again, in July, the company CFO Ranganath D Mavinakere, committing to the policy, has blamed company’s global presence causing delays in the buyback. IT companies are facing heat for increasing the shareholder’s value.

Already this year, other big IT firms have also announced share buybacks. TCS, India's largest IT company, this year completed a Rs. 16,000 crore share buyback, while Bengaluru-based Wipro announced a Rs. 11,000 crore share buyback last month.

With the IT industry going through a bad patch of a slowdown in business demand, automation, rising currency and the verbal dual between leadership, Infosys has been an underperformer in last 12-18 months.

The stock, which touched fresh multi-year low on Friday of Rs884.40, came down nearly 9% so far in the year 2017 and by about 13% in the last one year compared to 12% gain in the S&P BSE Sensex in the same period.

A share buyback is a tax effective way to distribute accumulated cash to shareholders, aiding their return on investment.

Earlier, embroiled in the controversy, the company’s director, Kiran Mazumdar Shaw has told DH, “If we don’t find the kind of merger and acquisition opportunities that we are looking at, obviously we would look at the buyback of the shares. But please give us time, because not every company wants to do a share buyback.”

The company has cash and cash equivalent worth Rs 23,117 crore as on June 30, 2017, up 2.17% from Rs 22,625 crore in the preceding quarter.

Earlier on Friday, Infosys shares fell by 9.6% after its CEO and MD Vishal Sikka's resignation. It wiped out an over Rs 22,000 crore of investors wealth in Infosys as the company’s market capitalisation which is the combined market value of its listed shares sank to Rs 2,12,033 crore.