Infosys’ Rs 18,000 Cr Buyback Opens: What Investors Must Do Before Nov 26

Infosys has started the biggest share buyback in its history with a buyback of up to Rs 18,000 crore that opened for tenders on Thursday. The investors who were registered as shareholders on November 14 now have five trading days to submit their shares, with the offer period closing on November 26.

The record date set by the company at the beginning of November determined who was eligible for the buyback. Any person who had shares of Infosys in their demat account on that day is allowed to take part in the buyback programme.

The giant company providing IT services is aiming at a maximum of 10 crores of equity shares with a Rs 5 declared value each. This is approximately 2.41% of the total equity currently held by Infosys. The offer price is fixed at Rs 1,800 per share.

Part of this buyback is dedicated to the smaller shareholders. Small investors with shares worth Rs 2 lakh or less will be able to buyback at least 15% of the total proposed buyback. At the time of the announcement, Infosys had around 25.85 lakh small shareholders.

The promoters including Nandan Nilekani and Sudha Murty have chosen to stay out of the buyback. Their total holding was 13.05% when the buyback scheme was announced.

In the category set aside for the tendering, the ratio of share acceptance works out to 2 for every 11 shares held. For the general category, the ratio is 17 shares for every 706 shares held. These ratios show how many shares the company is likely to accept from an investor relative to their holdings.

Brokerage firms are of the opinion that the offer is good, particularly for retail investors, as the buyback price is not only above the market price but also quite attractive.

Prashanth Tapse of Mehta Equities states that the situation is most advantageous for the less taxed ones. He continues saying that the long-term stockholders can opt for remaining in the game while the short-term ones will assess the tax consequences before making their decision.

Abhinav Tiwari from Bonanza sees a better ratio of acceptance among the public shareholders as the promoters will not be taking part. This could increase the effective profit for the small investors who offer their shares.

Analysts are alerting that the taxman might take such a big share of the pie that it would not be worth granting that share. Tapse mentions that the whole buyback profit is taxable for the stockholders in the higher income tax brackets which can result in the final distribution getting heavily cut.

Tiwari uses the term “deemed dividends” when referring to buybacks and adds investors who belong in the group of 30% tax or more may find the premium shrink to the point where selling shares directly in the market would be more advantageous. In case of the lower tax brackets, they might still get the benefit from the tender route.

Indicators of tax concern are still there but the buyback strategy of Infosys is a signal of good financing that the company is taking. The firm is resorting to internal reserves and cash which implies strong free cash flow.

Tiwari also supports that the so-called 'clearing' of the stocks could make long-term metrics such as return on equity better, thus granting value to the shareholders who would not want their shares to be bought back.