Infosys Limited Buyback Offer 2022
(Updates 18Mar2023, 15Feb2023, 14Feb2023, 06Dec2022 and 13Oct2022 are available below. Even though this blog was posted originally on 11Oct2022, I had continually updated this blog whenever new information was made available on the buyback offer.)
(This is for information purposes only. This should not be construed as a recommendation. Please consult your financial adviser before taking any plunge.)
1. Infosys Limited (Infosys hereinafter) on 10Oct2022 announced, through a BSE stock exchange filing, that its board of directors would meet on 13Oct2022 to consider a proposal to buy back the company's equity shares (fully paid-up). Its board is also considering the Jul-Sep2022 quarter results at its meeting on the same day.
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2. The above BSE announcement was made after the closure of market hours on 10Oct2022, at which the price of Infosys was Rs 1,462.70 and the market cap was nearly Rs 615,500 crore.
3. In the recent past, Infosys had bought back its shares three times -- in 2017, 2019 and 2021. The details are presented in Table 1 below:
Table 1: Past Buyback Offers >
4. The 2017 offer was through 'tender offer' route and promoters participated in the buyback (Table 1 above). Both the 2019 and 2021 offers were through the 'open market via stock exchange' route. Under this route, promoters cannot participate in the buyback as per capital market regulator SEBI (Securities and Exchange Board of India) guidelines.
5. Let us see what percentage of paid-up equity shares were cancelled / extinguished through the three buyback offers in the past five years.
Table 2: Percentage of shares cancelled via buybacks >
6. As shown in Table 2 above, the percentage of shares extinguished are 4.92, 2.53 and 1.31 through the 2017, 2019 and 2021 buyback offers respectively. In all the three offers, the company was able to cancel 8.54 percent of paid-up equity shares in total. As the number of shares were reduced, the earnings per share (EPS) got a boost with the share buybacks.
7. It's
important for investors to understand the intentions of the company's management for share buyback. Investors need to ask why to
use the share buyback, instead of dividends, for cash distribution to shareholders. One of the
important criteria to know management's intentions is whether the promoters are participating in the buyback. (Indian tax policies have some peculiar provisions, providing tax arbitrage for buyback offers as compared to dividend payments. See this blog for more on such tax distortions.)
8. The share buybacks or repurchases are beneficial for shareholders if and only the company is buying back the shares at attractive valuations. Investors need to assess whether the buyback price is below the intrinsic value of the shares. If the company is buying back shares at higher valuations, the company is destroying shareholder value.
(I'll be updating this blog as and when new developments take place in relation to the buyback offer)
Update 13Oct2022
9. As scheduled, Infosys' Board of Directors met on 13Oct2022 and announced quarterly results and brief details of buyback (the announcement was made after closure of market hours). As at close of 13Oct22, the market price of its stock is Rs 1,420 per share with a market cap of Rs 597,400 crore.
10. Limited details of buyback as announced on 13Oct2022:
11. Comparison of all four buybacks including the current one:
Update 06Dec2022
12. The company today made a public announcement giving full details of the buyback proposal.
13. The maximum buyback size (which is Rs 9,300 crore) represents 14.84% and 13.31% of the company's aggregate of the total paid-up capital and free reserves on a standalone and consolidated basis respectively as of 30Sep2022.
14.
As the maximum buyback size is more than 10% of the total paid-up
capital and free reserves based on both standalone and consolidated
financial statements, shareholder approval by way of a special resolution is required for the
buyback proposal as per SEBI buyback norms. And the same was approved on 02Dec2022.
15. The buyback will start on 07Dec2022 and the last date will be earlier of 06Jun2023 (that is, six months from the date of start) or when the company fully deploys the maximum buyback size.
16. As per buyback norms, the company has already deposited 2.5% of the maximum buyback size into an Escrow Account opened for this purpose.
17. Reasons cited by the company for buyback are:
i.) to return surplus cash to shareholders as per Capital Allocation Policy; and
ii.) to create long-term shareholder value through improvement in return on equity and earnings per share; and
18. The maximum buyback price (Rs 1,850 per share) represents:
i) Premium of 25.70% and 25.55% to the volume weighted average market price (VWAP) of the Equity Shares on BSE and NSE, respectively, during the three months period ending October 10, 2022, being the date of the intimation to the Indian Stock Exchanges regarding the proposal of buyback.
ii. Premium of 30.70% and 30.73% to the VWAP of the Equity Shares on BSE and NSE, respectively, during the two weeks period ending October 10, 2022
iii. Premium of 26.48% over the closing price of the Equity Shares on BSE as well as NSE as on October 10, 2022.
19. The indicative maximum number of Equity Shares at the Maximum Buyback Price and the Maximum Buyback Size bought back would be 502,70,270 Equity Shares (“Maximum Buyback Shares”), comprising approximately 1.19% of the total paid-up equity share capital of the Company as of September 30, 2022 (on a standalone basis).
The Company shall utilize at least 50% of the amount earmarked as the Maximum Buyback Size for the Buyback, that is, Rs 4,650 crore (“Minimum Buyback Size”).
20. Company's Capital Allocation Policy: As per company's policy approved in Jul2019, the company has to return approximately 85% of the free cash flow cumulatively over a five-year period through a combination of semi-annual dividends and / or share buybacks and / or special dividends.
Update 14Feb2023 - Closure of Buyback
21. After closure of market hours on 13Feb2023, Infosys Limited announced the closure of the buyback offer. Between 07Dec2022 and 10Feb2023, the company bought back 604,26,348 equity shares at an average price of Rs 1,539.06 per share (against the maximum buyback price of Rs 1,850) -- using Rs 9,300 crore (100 percent of the maximum buyback size).
Update 15Feb2023
22. Infosys Limited today published a post-buyback public announcement with regard to the closure of the buyback.
23. In the past five years between 2017 and now, the company was able to extinguish 9.72 percent of the net equity shares (after adjusting for addition of shares via employee stock options). Details are given in the table >
As you've seen in the past four months, I had continually provided information updates on the buyback offer. With this, there will be no more blog updates on the buyback offer.
Update 18Mar2023
24. Even though Infosys' buyback closed and there is nothing more to write about it, I made a small analysis on the price action one month after the closure of buyback. Interestingly, the current market cap at Rs 590,480 crore is 4.1 percent below the market cap on the date the company announced (i.e., 10Oct2022) its decision to hold a board meeting for considering a buyback.
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References:
2022 post-buyback announcement
2021 post-buyback announcement
2019 post-buyback announcement
2017 post-buyback announcement
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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