Cog­nizant in Talks with El­liott

The Economic Times - - Com­pa­nies: Pur­suit Of Profit -

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.

SHARE­HOLDER RE­TURNS

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.

GLOBAL PRAC­TICE

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.

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