Share buyback: If Infosys listens to ex-CFOs it might make history

While top former Infosys executives TV Mohandas Pai, V Balakrishnan and DN Prahlad may have asked the company to buy back shares worth Rs 11,200 crore, the company is unlikely to play ball given the humongous amount involved. If the company were to launch the buyback, it would be the biggest such exercise ever launched by any Indian company.

As Firstbiz's R Jagannathan has pointed out a company hoarding cash without any real plan on how to use it in the short term should ideally reward its shareholders who have stuck by it even while its dividends and return on net worth have lagged peers.

However, a look at the some of the biggest share buyback announcements made over the last decade shows that if Infosys plans to follow its former CFOs advice it might just make history in Indian markets.

 Share buyback: If Infosys listens to ex-CFOs it might make history

Data obtained from Indian stock markets shows the biggest buyback in recent times was by Reliance Industries Ltd who had made an offer to buy back shares to the tune of Rs 10,440 crore in 2012 but ended up buying back shares worth just Rs 3,366 crore.

Even Cairn India had announced a Rs 5,725 crore share buyback programme. However, the company just got Rs 1,225 crore shares.

Reliance Infrastructure had offered to buy back total shares worth Rs 1,000 crore citing confidence in the company's future growth prospects and to lower the short-term volatility and speculative trades in the stock. However, the company bought back total shares worth Rs 234.32 crore. The company has bought back shares worth over Rs. 1,150 crore under four separate buyback programmes so far.

Unnamed sources told CNBC-TV18 that the company believes it is "seized of its responsibility to use cash reserve" and that various options for its utilization, including a buyback, have been on the board's agenda.

The sources also said the company was "astonished" at the demand raised by the ex-employees in question as they themselves were against the move when they were chief financial officers at the company. They further add that Infosys is "at an inflection point" and it wasn't the right time to take such knee-jerk reactions.

Infosys has shown no intent to follow the advice of its former executives and given the size of the suggested buyback, it is unlikely to follow it to the letter. However, its shareholders will be hopeful that the company will at least implement their advice in spirit and that a share buyback is imminent, if not on the same scale.

The move could not only boost the company's stock but also allow stockholders to share the management's confidence in the company. There are some analysts who have pointed out that a buyback at the current price wouldn't really serve as any advantage to the company's stockholders or the company

"The firm will lose USD 1.8 billion of cash. They will lose some element of other income through the loss of cash, but they will gain through reduced dividend pay and through reduction in the share pay. The result is net neutral at the earnings per share level. So the shareholder will be rich by almost nothing at the end of the day," Ankit Pande, IT analyst at Quant Broking told CNBC-TV18.

Updated Date: Aug 06, 2014 16:21:38 IST