Infosys Hits Record High on Share Buyback Buzz

Infosys share price rose to record high today after the company announced it will commence a Rs 92 bn buyback from Friday, 25 June.

Stock of the company rose to Rs 1,540, surpassing its previous high of Rs 1,525 touched yesterday.

Key details about the buyback

The IT major is looking to buy back shares at a maximum price of Rs 1,750 apiece.

Infosys would buy back a maximum of 5,25,71,428 equity shares, comprising approximately 1.23% of the paid-up equity share capital of the company as of 31 March 2021.

This is subject to the market price of Infosys being equal to the maximum buyback price.

The company's board had approved the buyback program on 14 April 2021, and the shareholders' nod was received on 19 June 2021, at the company's 40th annual general meeting (AGM).

The proposal for the offer received 98.83% votes in favour and 1.17% against it.

Yesterday, the Bengaluru-based company issued a public notice in various newspapers for the buyback of its equity shares from the open market through the stock exchange route.

The last date for the buyback would be 24 December 2021 (6 months from the date of the opening of the buyback) or when the company completes the buyback by deploying the amount equivalent to the maximum buyback size.

Infosys is sourcing out the funds needed for this buyback from its free reserves.

Infosys' capital allocation plan

Note that Infosys had enhanced its capital allocation plan since financial year 2019-20.

Infosys had said it will return 85% of free cash flow cumulatively over a five-year period via buyback and dividends.

In April this year, the company's board had recommended a capital return of Rs 156 bn, including a final dividend of Rs 64 bn and open market buyback of shares of Rs 92 bn.

This is not the first time Infosys is rewarding shareholders by the way of repurchasing.

Back in 2017, Infosys conducted its first share buyback, purchasing a total of Rs 130 bn in shares at a price of Rs 1,150 per share.

Later in 2019, Infosys bought back Rs 82.6 bn in shares at a price of Rs 747 per share.

The bluechip company has also consistently rewarded shareholders by way of dividends.

Moreover, the company's management has been generous in granting bonus. The company has offered bonus shares as many as twelve times.

In 2005, Infosys announced a 3:1 bonus issue.

In 2019, the company had issued 1:1 bonus shares to celebrate 25 years of its listing on the Indian stock exchanges in 1993.

Why do companies come out with buybacks?

Apart from dividend and bonus, a company rewards shareholders in the way of buybacks.

There can be several reasons behind every share buyback.

Companies usually purchase back shares at a greater price than the market price to assure confidence in future prospects.

Moreover, share repurchase reduces the number of outstanding shares, which enhances the company's earnings per share (EPS).

Also, a buyback makes more sense from a tax standpoint than a special dividend.

In Union Budget 2016, the government levied an additional 10% tax on dividends in the hands of shareholders. A buyback has no such tax implications, making it more tax efficient than a special dividend.

As a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, Co-head of Research at Equitymaster, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

For more information, read our article around what should a retail investor do.

How the stock markets reacted to Infosys' buyback news

Infosys share price rose over 2% today following the buyback news.

It touched an all-time high of Rs 1,540 on the BSE, surpassing it's previous high touched yesterday.

IT stocks are trading on a positive note today with TCS and Mphasis among the top gainers.

Over the past month, shares of Infosys have outperformed the benchmark indices by surging 14%.

Over the past one year, shares of the company have doubled investors' wealth, gaining 109%.

The recent run up has also helped Infosys' market cap to cross Rs 6.5 trillion.

About Infosys

Infosys is a large Indian IT services company, offering a range of digital and traditional IT services.

From humble beginnings in 1981, the company now counts itself amongst the largest and most respected global software firms. It's known around the world for its visionary management, work ethics and corporate governance standards.

The company caters to industry verticals such as financial services, retail, communication, manufacturing, hi-tech, life sciences, energy, utilities, resources, and services.

Infosys has always had visionary management to guide the company through good times and bad. Over time, Infosys' management has earned a reputation for being ahead of the curve in terms of human resource management policies and investor relations.

For more details about the company, you can have a look at Infosys company factsheet and Infosys quarterly results on our website.

For a sector overview, you can read our IT sector report.

You can also compare Infosys with its peers.

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