Infosys shares buyback: Stock falls ahead of corporate action, check expected size & more

Shares of Infosys saw some profit booking on Thursday as the company board is set to meet on Thursday, September 11, to consider buyback of its equity shares. Shares of Infosys have been rallying higher since the IT solutions major announced its board meeting for the aforesaid corporate action. This will be fifth buyback by Infosys and first in three-years in December 2022.

The Bengaluru-based IT solutions major has a policy of returning around 85 per cent of its free cash flow cumulatively over a five-year period through a combination of semi-annual dividends, share buyback and special dividends, subject to applicable laws and requisite approvals.

It remains to be seen whether Infsosys will adopt the tender offer or the open market route. Under the tender offer system, the company offers to buy shares from existing shareholders at a fixed price, usually at a premium to the current market price. Investors can then choose whether to sell their shares within a specified time frame.

In the open market offer, the company directly buys its shares from the stock exchange, just like other investors do. Unlike the tender offer, this method allows the company to buy shares at prevailing market prices, without an obligation to pay a premium or set a predetermined price. Interestingly, the last buyback of Infosys happened at a price of Rs 1,850 apiece in 2022.

Shares of Infosys dropped more than 1.25 per cent on Thursday to Rs 1,513. Its market capitalization slipped below Rs 6.3 lakh crore mark. The stock is down nearly 25 per cent from its 52-week low at Rs 2,006.80 for the day. The stock is down nearly 20 per cent in the last one year.

Infosys currently has a paid-up equity capital of Rs 2,074 crore and reserves and surplus worth Rs 93,745 crore, which adds up to 95,819 crore. In the last two buybacks, the company utilized around 12 per cent of its paid-up capital and surplus. If that holds true, then Infosys may go for Rs 11,500 crore buy back.

However, Infosys has a cash and cash equivalents of Rs 45,200 crore in its book and it has a history of utilizing around 30 per cent that in a buy. This calculation hints that Infosys may go for a Rs 13,560 crore buyback.

On the other hand,  Consensus Target Price for Infosys is Rs 1,743, suggesting a 15 per cent upside for the stock, while the highest target price is Rs Rs 2,085 – 38 per cent. Thus, Infosys may consider a buyback at 25-30% premium, somewhere around Rs 1,800-1,900 per share.

In other news, Infosys said that its wholly owned subsidiary, Infosys Finacle, part of EdgeVerve Systems and PT Bank CTBC Indonesia, a subsidiary of the CTBC Group, Taiwan, announced the successful deployment of Finacle Digital Banking Solution Suite on a cloud hosted model, as part of the bank’s digital transformation initiatives.

"With this deployment, the bank can now scale effortlessly to meet growing business demands and deliver innovations faster, ensuring shorter time-to-market for new products and services. This modernization aligns with the bank’s goal of improving operational efficiency and enhancing customer experience," added the company in a separate exchange filing.

On the other hand, Hong Kong-based brokerage firm CLSA believes that there could be incremental pressure on Tata Consultancy Services (TCS) to undertake a similar move as a confidence-building measure amid an overall weak demand environment. TCS's last share buyback concluded in December 2023.