Infosys board today approved a Rs 13,000 crore share buyback plan, which is likely to provide support to its share prices in the short term. Infosys board went ahead with its share buyback decision, as announced on Thursday, despite the sudden resignation of Vishal Sikka as CEO and MD of the company. Dr Sikka's resignation on Friday wiped out over Rs 20,000 crore of shareholders' wealth as the stock tumbled nearly 10 per cent. The share buyback price of Rs 1,150 set by the board, is at 25 per cent premium to its Friday's closing price of Rs 923.10 and may lead to a positive opening of shares on Monday, analysts say.
- Infosys announced a Rs 13,000 crore share buyback today
- The buyback price set buy Infosys is at 25% premium to Friday's closing
- The buyback comprise a purchase of up to 11.30 crore shares
The share buyback may provide some support to Infosys shares at lower level, said VK Sharma of HDFC Securities.
The buyback offer announced by Infosys will comprise a purchase of up to 11.30 crore equity shares aggregating up to 4.92 per cent of the paid-up equity share capital of the company at Rs 1,150 per share, the company said in a release. The record date to identify the eligible shareholders to participate in the buyback will be decided later, the company added.
A share buyback is a tax effective way to distribute accumulated cash to shareholders, thereby increasing their return on investment, analysts say. Infosys had liquid assets (cash and short term investments) of over Rs. 39,000 crore as on June 30, 2017.
Infosys was under tremendous pressure to increase shareholders value amid slowing growth in its core business. Technological changes like automation and a crackdown on visas in some countries have hurt the overall growth of Indian IT companies.
In the recent past, other big IT outsourcers have also announced share buybacks. TCS, India's biggest outsourcer, in May this year completed a Rs. 16,000 crore share buyback while Wipro announced a Rs. 11,000 crore share buyback last month.
However, some analysts believe that the share buybacks can provide a temporary fillip to Infosys shares, whereas in the long run, share prices will be driven by earnings growth and clarity over appointment of new CEO.