14 Oct , 2022 By : Monika Singh
India’s second-largest IT services company, Infosys, on Thursday announced a share buyback of Rs 9,300 crore via open market route, for a price not exceeding Rs 1,850 per equity share. The board has also declared an interim dividend of Rs 16.50 per share, an increase of 10% over FY22 interim dividend.
“The board in its meeting held today approved…buyback of equity shares, from the open market route through the Indian stock exchanges, amounting to Rs 9,300 crore (maximum buyback size, excluding buyback tax) at a price not exceeding Rs 1,850 per share (maximum buyback price), subject to shareholders’ approval,” the statement said. The buyback price is 30% higher than the scrip’s closing price of Rs 1,419.7 on Thursday.
Under a share buyback or repurchase, a company buys back its own shares from investors or shareholders. It is seen as an alternative, tax-efficient way to return money to shareholders.
Last year, the Infosys board had approved an up to Rs 9,200-crore buyback plan, which commenced on June 25, 2021 and ended on September 14, 2021.
From 2019-20, Infosys had enhanced its capital allocation plan, saying it would return 85% of the free cash flow cumulatively, over a five-year period, via buyback and dividends. Analysts pointed out before the company’s announcement on Monday that if the the IT major is to fulfil this objective, it needs to come up with a buyback soon.
Technology stocks have been beaten down by the market, which believes revenue growth could decelerate in the wake of a global slowdown. A buyback, therefore, could help shore up the stock price.
In 2021, Infosys bought back over 55.8 million equity shares as part of a Rs 9,200-crore buyback offer. Shares were bought back at a volume weighted average price of Rs 1,648.53 per share, according to a public notice.
Over the past 10 years, the payout ratios for top five IT players have more than doubled from an average of 40% over FY13-17 to 85% of profits over FY18-22.
Analysts at Jefferies wrote this has been partly driven by a “higher willingness to pay out more and partly by an increase in FCF conversion from 74% to 90% during this period”. Consequently, cash payouts have formed a sizable 20% of total return for large IT firms since March 2017. Alongside higher payouts, IT firms have started returning nearly 50% of cash payouts through buybacks.
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