Infy Seeks Shareholders’ Nod for Change in Articles
Bengaluru: Infosys is asking shareholders to approve an amendment to its articles of association allowing it to repurchase shares, a change that would help the IT company mimic the moves of its larger rivals.
The company will also ask shareholders to approve independent director DN Prahlad’s appointment to the board and the revision to chief operating officer UB Pravin Rao’s compensation, it said in a filing to the Bombay Stock Exchange.
Infosys’ current articles of association do not explicitly mention share repurchases. The amendment would set the stage for a buyback, allowing the board to consider such a proposal. The results of the shareholder vote would be announced in April, the company said.
Infosys’ founders, who own close to 13% of the company’s shares, would not object to such a move, a source with knowledge of the matter told ET. The company is under significant pressure to initiate a buyback after larger rivals Cognizant and Tata Consultancy Services announced multi-billion-dollar buybacks.
Earlier this month, Cognizant said it would return $3.4 billion to shareholders in the form of buybacks and dividend repurchases. TCS announced a .₹ 16,000-crore buyback this week. EThad earlier reported that following activist hedge fund Elliott’s letter to Cognizant in November, investors had begun to ask Indian IT companies to boost their buyback as well to compensate shareholders as industry growth slows. Infosys has said it looks at its capital allocation plan periodically and has been increasing its dividend payout. But investors have been asking for more.
“Higher taxes on dividends and easier process for a share buyback (eg: can now be done over exchange) have increased the attractiveness of share buyback over dividends. We had pointed out that Cognizant’s announcements would likely result in its peers becoming more disciplined about their cash pay-out,” Sagar Rastogi, analyst with Ambit Capital, had told ET. He pointed out that Infosys has one of the highest cash holdings as a percentage of market capitalisation among Indian-listed companies.
At the end of December, Infosys had $4.48 billion in cash, cash equivalents and investments. Analysts say Infosys’ buyback would be limited given the company’s aggressive growth plans. “I don’t think Infosys will be able to do a mega-buyback unless they reduce their growth targets. If you want to reach $20 billion in revenue by 2020 and you have said that $1.5 billion of that will come from acquisitions, you have to hold cash on the balance sheet,” a second analyst, who declined to be identified, told ET. Infosys has already been at the receiving end of calls asking it to buyback shares.
In 2014, the company was asked to institute a buyback but did not go through with the request.
At that time, two of the company’s former chief financial officers, V Balakrishnan and TV Mohandas Pai, and current Infosys board member Prahlad wrote a letter to the company’s board asking them to begin a .₹ 11,000-crore buyback.
Last week, Rao said the company was looking at all options and buybacks could happen at the appropriate time. Infosys also amended Article 106 to specify that the company may appoint15 directors and any increase would require a special resolution in line with the Companies Act of 2013.
The current version says the company can appoint a maximum of 18 directors. The Infosys board currently has10 directors.