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Home / Markets / Stock Markets /  A potential Infosys' share buyback could support stock price in near term: Jefferies

A potential Infosys' share buyback could support stock price in near term: Jefferies

An Infosys Ltd. office building in the Electronic City area of Bengaluru, India

  • The global brokerage expects Infosys to announce a share buyback worth 87-95 bn

Cash payouts form 20% of the total return for IT firms since March 2017, with around 50% of this through buybacks. Changes in taxation have left only TCS, Infosys, and Wipro as buyback-friendly firms, said global brokerage Jefferies. 

Cash payouts form 20% of the total return for IT firms since March 2017, with around 50% of this through buybacks. Changes in taxation have left only TCS, Infosys, and Wipro as buyback-friendly firms, said global brokerage Jefferies. 

Of these, the brokerage expects Infosys to announce a buyback worth 87-95 bn, while Wipro's buyback seems unlikely given its focus on inorganic growth and Infosys's buyback should support the share price amidst uncertain macro.

Of these, the brokerage expects Infosys to announce a buyback worth 87-95 bn, while Wipro's buyback seems unlikely given its focus on inorganic growth and Infosys's buyback should support the share price amidst uncertain macro.

“In the past, Infosys's buyback announcements have come when its net cash has been in the range of 300-400 bn. Given our estimated net cash balance of 401 bn for Infosys as of September 23, we believe it has sufficient cash to announce a buyback," the note stated.

“In the past, Infosys's buyback announcements have come when its net cash has been in the range of 300-400 bn. Given our estimated net cash balance of 401 bn for Infosys as of September 23, we believe it has sufficient cash to announce a buyback," the note stated.

In the past, Infosys has returned c.30% of its net cash balance through buybacks, implying a buyback size in the range of Rs87-95bn excluding buyback tax. Infosys has preferred the open market route, with a maximum buyback price at a 17-25% premium. “At CMP, this could imply the maximum buyback price in the range of 1630-1750. That said, the blended buyback price in the previous buybacks has been 6-7% lower than the maximum buyback price," Jefferies added.

In the past, Infosys has returned c.30% of its net cash balance through buybacks, implying a buyback size in the range of Rs87-95bn excluding buyback tax. Infosys has preferred the open market route, with a maximum buyback price at a 17-25% premium. “At CMP, this could imply the maximum buyback price in the range of 1630-1750. That said, the blended buyback price in the previous buybacks has been 6-7% lower than the maximum buyback price," Jefferies added.

During previous buybacks, Infosys's stock rose by 12-21% from the announcement to the buyback's closure and outperformed Nifty IT on 2 of the past 3 occasions. Also, the stock price has reached the maximum buyback price during previous two buybacks. Hence, a potential buyback announcement could support Infosys' share price in the near term amidst macro uncertainty, it said while maintaining its BUY on the IT stock with a target price of 1,700.

During previous buybacks, Infosys's stock rose by 12-21% from the announcement to the buyback's closure and outperformed Nifty IT on 2 of the past 3 occasions. Also, the stock price has reached the maximum buyback price during previous two buybacks. Hence, a potential buyback announcement could support Infosys' share price in the near term amidst macro uncertainty, it said while maintaining its BUY on the IT stock with a target price of 1,700.

Indian regulations require a minimum period of one year between two buybacks. Given this, TCS cannot announce a buyback until March 2023, as it closed its previous buyback in March 2022. This leaves only Infosys and Wipro among the three buyback friendly IT firms that could announce a buyback, as their previous buybacks closed in September 2021 and January 21, respectively.

Indian regulations require a minimum period of one year between two buybacks. Given this, TCS cannot announce a buyback until March 2023, as it closed its previous buyback in March 2022. This leaves only Infosys and Wipro among the three buyback friendly IT firms that could announce a buyback, as their previous buybacks closed in September 2021 and January 21, respectively.

A share buyback, also known as share repurchase, is a corporate action to buy back its own outstanding shares from its existing shareholders usually at a premium to the prevailing market price. 

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A share buyback, also known as share repurchase, is a corporate action to buy back its own outstanding shares from its existing shareholders usually at a premium to the prevailing market price. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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