Cognizant in Talks with Elliott
For its part, Cognizant had said it was in discussions with Elliott but has not disclosed its response. The company is due to report earnings on Wednesday. These demands have opened a can of worms for Indian IT companies which are now besieged by similar requests from investors. Last year, Wipro announced its plan to buy back up to 40 million shares.
“Given the current regulatory environment and investor feedback, apart from just dividends, we are also evaluating other options to enhance our focus on stakeholder value,” Jagannathan Chakravarthi Narasimhan, chief financial officer at Mindtree, said in a post-earnings conference call with analysts last month.
In 2014, Infosys faced calls to institute a buyback, but it did not go through with the request. At that time, two of the company’s former chief financial officers, V Balakrishnan and TV Mohan- das Pai, and current Infosys board member DN Prahlad wrote a letter to the company’s board asking them to begin a .₹ 11,000-crore buyback. This time, however, it is a rare instance of several companies facing similar requests.
“Many different investors sent me the link to the Cognizant letter. The idea is that if we have only single-digit growth, we should boost shareholder returns in other ways. Every company is facing similar requests and the calls are getting louder,” said a chief financial officer at a mid-tier IT services firm. He declined to be identified.
Balakrishnan still believes that boosting shareholder value should be a key focus for Indian IT.
“If you look over the last three years, IT shareholder returns have not been good. They need to start looking at ways to boost the returns and buybacks will help put a floor under the share price,” Balakrishnan told ET. He added that the companies should also give investor a clear idea of how their transformation will play out.
Infosys has said it aspires to reach $20 billion in revenue by 2020. Wipro’s aspiration is to reach $15 billion in revenue in the same time frame. To reach these targets, both companies would have to make large acquisitions, which have, so far, not materialised.
Analysts point to global outsourcing companies such as Accenture, which has a strong buyback programme and has also spent over $1 billion on acquisitions. “What worries investors is that Indian IT companies are doing neither. There is too much cash on the balance sheet. Though Wipro has been more acquisitive and had a buyback programme last year,” an analyst with a Mumbai-based brokerage said. He declined to be identified.