Is Infosys' Rs 13,000 crore bonanza for shareholders enough?

The amount allocated, experts say, could have been higher in light of TCS' 16,000-cr buyback

Infosys, while announcing its Q4FY17 results, made changes to its capital allocation policy. Starting FY18, it will use 70% of its free cash flows for paying dividends or buying back shares. That apart, the Board has decided to pay Rs 13,000 crore to shareholders by way of dividend or buyback during FY18, subject to necessary approvals.

Market, analysts say, had been expecting a significant buyback and capital allocation strategy, and any announcement related to these would be important from stock price perspective. While most agree that the move is a step in the right direction, the amount allocated towards this could have been higher.

“I think the markets were expecting a $2 billion outlay through their earlier guidance and commentary. We continue to be positive on the stock given some of the changes that Vishal Sikka has brought in. These are in line with the changes that are happening at the customer-end, in terms of the nature of technology – be it digital in general of analytics and mobility in particular. To that extent, there is need for all IT companies to move up the value chain. Of all IT companies, Infosys is better positioned to adapt to these changes,” said Pramod Gubbi, head of equities at Ambit Capital.

“Capital allocation is a positive, although it was known. For Infosys, the move is a break from the past and is definitely a positive. However, the Rs 13,000 crore amount allocated could have been higher. But, I think the company wants to take one step at a time,” he adds.

Among other IT heavyweights, TCS board in February approved a proposal to buy back up to 56.14 million equity shares of the company for an aggregate amount not exceeding Rs 16,000 crore, being 2.85% of the total paid-up equity share capital, at Rs 2,850 per equity share.

“The allocation includes buybacks and dividends, which I feel is a bit of a dampener. If one takes the dividend out, the amount will be less since now 70% of the free cash flow will be allocated to this. I think Infosys is not trying to set very high expectations, but go along with the Street’s demands. I feel the company can revise this allocation upwards going ahead,” suggests Prakash Diwan, director, Altamount Capital Management.

“The stock will see a time-wise correction and will continue to languish around Rs 900 – Rs 1,000 levels. The margin and EBIT guidance have been subdued, which will not encourage investors to aggressively invest in the counter,” he adds. 

Buyback Bonanza
Company	Price(Rs)	% of Capital	Amt (RsCr)
TCS*	2,850	2.85	16,000
HCL Technologies*	1,000	2.48	3,500
Wipro	625	1.62	2,500
MphasiS*	635	8.26	1,103
eClerx Services	2,000	2.87	234
Infinite Comp	265	24.77	150
Hexaware Tech.	240	1.90	137
Sasken Technol.	410	16.19	118
R Systems Intl.	65	2.36	20

* Proposed

Compiled by BS Research

Source: Capitaline