Infosys ₹9,300 cr share buyback plan commences on 7 Dec. How to participate?

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Infosys ₹9,300 cr share buyback plan commences on 7 Dec. How to participate?

The maximum buyback size represented 14.84% and 13.31% of the aggregate of the total paid-up share capital and free reserves of Infosys. 

Infosys’ total buyback offer would be over 5.02 crore equity shares aggregating to ₹9,300 crore at a face value of ₹5 each. The buyback price should not exceed ₹1,850 per share.

IT-giant Infosys shares are in focus after its buyback offer commenced. On Thursday, the fourth largest company in terms of market share was trading broadly flat. The share buyback worth ₹9,300 crore commenced on December 7 and will continue till June 6, 2023. On the first day of the offer, Infosys bought back equity shares worth nearly ₹202 crore on exchanges, as per the regulatory filing.

At around 10 am, Infosys stock traded at ₹1,606.70 apiece marginally up from the previous closing of ₹1,605.05 apiece on BSE. At the current price level, Infosys’ market cap is near ₹6.77 lakh crore.

On Wednesday, in a regulatory filing, Infosys revealed that the company bought back 25,000 shares on BSE and 12.23 lakh shares on NSE at an average price of ₹1,615.54 apiece. The total shares on the first day bought were to the tune of 12.48 lakh on stock exchanges aggregating to around ₹201.62 crore at the average price. Kotak Securities was the broker for the transaction.Infosys’ total buyback offer would be over 5.02 crore equity shares aggregating to ₹9,300 crore at a face value of ₹5 each. The buyback price should not exceed ₹1,850 per share.The company will be implementing this buyback through its free reserves.

Of the total buyback size, Infosys proposed to utilise at least 50% of the maximum buyback which would come to ₹4,650 crore (50% of ₹9,300 crore).As of September 30, 2022, Infosys has a free cash flow of ₹4,752 crore compared to ₹5,106 crore in Q1FY23. Further, its consolidated cash and investments stood at ₹38,921 crore in Q2FY23 against ₹34,854 crore in Q1FY22.According to Infosys notice, the buyback will help the company to return surplus cash to its shareholders.In the general term, the buyback is expected to improve return on equity through the distribution of cash and improve earnings per share by a reduction in the equity base in the long term, thereby leading to a long-term increase in members’ value. Also, the buyback gives an opportunity to shareholders to increase their percentage of holding in the company.

How to participate in Infosys share buyback? 

Last month, in its blog on Infosys share buyback, ICICI Direct stated  that since the buyback is of the open market there is no special participation required.

Any equity shareholder who owns Infosys shares in their Demat account is eligible for participating in the buyback. In case, a shareholder plans to participate in the buyback, all they have to do is inform their broker of the equity shares they desire to sell. The broker will then place a sell order whenever the company places a buy order under the buyback plan.

As per ICICI Direct, the trade would get executed at the offer price or lesser only when the price offered by the shareholder matches the buy order placed by the company.

Where are Infosys shares headed? 

In its research note dated November 30, AUM Capital gave a buy recommendation on Infosys stock. The stock brokerage’s note stated that Infosys has accelerated deal win momentum through engagement with deal advisors, consulting firms, and private equity players.

Further, the brokerage’s note explained that strong deal wins across Digital and Automation verticals have given it an edge over other listed peers in the recently announced Q2FY23 results. It is witnessing an acceleration in its growth strategy due to its industry-leading automation capabilities and the client-level shift towards cost rationalization programmes.

In Q2FY23, the company garnered a consolidated net profit of ₹6,021 crore up by 11% yoy, while revenue stood at ₹36,538 crore higher by 23.43% yoy. In the quarter, Infosys reported strong Q2 performance with year-on-year growth at 18.8% and sequential growth at 4.0% in constant currency. Year-on-year growth was in double digits across all business segments in constant currency terms. Digital comprised 61.8% of overall revenues and grew at 31.2% in constant currency.

Also, Infosys’ operating margin for the quarter increased sequentially by 140 bps to 21.5%. Large deal TCV for the quarter was robust at $2.7 billion, the highest in the last 7 quarters.

Infosys management raised its FY23 revenue growth guidance range from 14-16% to now 15-16%, while revising its EBIT margin guidance to 21-22%.

Further, AUM Capital’s note said on Infosys that “though there are signs of a slowdown in some pockets such as mortgage, discretionary retail, telecom, and Hi-tech segment, but that they were discretionary related and is not expected to prove much of a concern over the long term and would stabilize once the macroeconomic situation improves.”

It added, Infosys stresses on the need to constantly identify new, relevant skills and building capabilities around them. For this purpose, it is always on the lookout for good acquisition opportunities of niche and innovative firms around the world.

Hence, AUM Capital recommended a buy with a target price of ₹1937 in the next 9-12 months time period.

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