Market buzz on Rs 2k-cr Infosys buyback gets louder

Infosys, India’s second-largest IT services company, is likely to go for a share buyback worth $400 million (around Rs 2,215 crore). There is strong buzz in the market that the company is expected to make an announcement to this effect on July 12 when it announces its first quarterly results for FY13.

If Infosys goes ahead with this, it will be the first time the company would go for a buyback. The development, however, had little impact on the company’s stock performance on Tuesday. The Infosys stock price touched an intra-day high of Rs 2,462 before closing at Rs 2,459.10, marginally up, by 0.92 per cent, on the BSE, on a day when the market went up by 1.30 per cent.

As of March 31, 2012, Infosys had cash reserves of $4.1 billion (Rs 20,968 crore in rupee terms). In a buyback of $400 million, the company may spend about 10 per cent of its total cash reserves.

V Balakrishnan, CFO of the Bangalore-based company, did not reply to text messages and calls made to him remained unanswered. In response to an email query, the company spokesperson said, “We are unable to offer comments on this as we are in our silent period.”

Infosys, which has been under tremendous pressure from investors over its performance in the past few quarters, has been looking for acquisitions to expand its scale. However, the pace of its inorganic pursuits is said to have slowed as the company does not want to exhaust its cash, which it considers a cushion in uncertain times.

Industry analysts tracking the company say the buyback would perhaps be the best option in the given circumstances to win back investors' confidence. Infosys may also have taken cues from global competitions like Accenture and Cognizant, which had gone for buyback programmes in recent months, sources said.

“They perhaps think their stock is undervalued. A share buyback will indicate they see value,” said an analyst on the condition of anonymity.

However, there are a few industry analysts who believe the positives of a share buyback may not last long unless the company delivers a solid financial performance.

“I don’t think 10 per cent utilisation of the cash kitty in terms of a buyback is going to help the Infosys stock outperform the broader market in the medium term. It might send a short-term positive signal to the investors. But Infosys needs to perform fundamentally for long-term outperformance,” said Sanjeev Hota, AVP, research (IT), at brokerage firm Sharekhan.

Infosys has given a full-year guidance of 8-10 per cent growth in revenues, lower than the 11-14 per cent projection given by industry association Nasscom for 2012-13. The company’s numbers for the first quarter of FY13 are unlikely to be in line with expectations.