The Infosys board on Friday approved a share buyback for up to Rs 800 a piece, which will cost the company around Rs 8,260 crore. This is the second share buyback in the company’s history. The first was in December 2017. A company can do a share repurchase only once a year. That moratorium ended last month for the company.
At its maximum price and size, the buyback will include 103.250 million shares, comprising around 2.36% of the paid-up capital of the company on a standalone basis. The company’s equity comprises 4.36 billion shares.
Infosys’ first buyback, at Rs 1,150 per share, had returned around Rs 13,000 crore to shareholders.
In April 2018, Infosys had outlined its capital allocation policy under which it said it intended to return its shareholders Rs 2,600 crore in dividend and another Rs 10,400 crore through other means, including a buyback.
All big IT companies like Tata Consultancy Services (TCS), HCL Technologies (HCL) and Wipro announced large share buybacks in the last two years.
A share buyback is generally not looked at favourably by investors since it indicates lack of opportunities for the company to utilise cash more effectively. The company, faced with few opportunities to deploy cash and mindful of the fact that a large pile sitting on the books drags down return on equity and hence shareholder value, finds it better to return money to shareholders.
In markets such as the US and Europe, large institutional investors do not take kindly to companies sitting on cash and often force them to return money to shareholders through such exercises.