Season of Buybacks: TCS may Head Down Cognizant Route
Board to consider proposal at February 20 meeting; Infosys and Wipro could be next in line
(As of Dec 31, 2016)
Investors have been pushing for a share of billions of dollars that software exporters have on their books
Cognizant had said it would return $3.4 b to shareholders in dividends and increased buybacks ₹ Mumbai: Tata Consultancy Services said its board will consider a buyback next week, becoming the latest IT company to debate a hot-button issue as investors push for a share of billions of dollars that software exporters have on their books amid slowing growth and shrinking returns. The move comes less than two weeks after rival Cognizant said it would return $3.4 billion to shareholders — in dividends and increased buybacks — after activist hedge fund Elliott Management took aim at the company’s capital-allocation policy. Technology companies such as Infosys and Wipro are facing similar pressure and could be next, analysts said.
“The board of directors will consider a proposal for buyback of equity shares of the company at its meeting to be held on February 20,” TCS, India’s largest IT company, said in a stock exchange filing.
The company had $5.69 billion in cash and cash equivalents and investments on its books as of December 31 last year. Free cash flow generation crossed $1 billion in the December quarter. ET had earlier reported that following Elliott’s letter to Cognizant in November, investors had begun to ask Indian IT companies to boost buybacks and compensate shareholders amid growth uncertainty. Buybacks are a key topic of conversation at the annual meeting of the Nasscom lobby group currently taking place in Mumbai. The board of Mphasis approved buybacks worth a little over .₹ 1,100 crore on January 31. Other IT companies are likely to decide soon on whether to adopt a similar tack. Higher taxes on dividends and easier buybacks — they can be conducted on exchanges — have increased their appeal, said Ambit Capital analyst Sagar Rastogi. “We had pointed out that Cognizant’s announcements would likely result in its peers becoming more disciplined about their cash payout,” he said.
Among India-listed companies, Infosys and Wipro have the most cash as a proportion of market capitalisation and should consider returning some of it to shareholders, he added.
Among India-listed IT companies, Infosys and Wipro have most cash as a proportion of market cap
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The board of Mphasis approved buybacks worth a little over 1,100 crore on January 31