Nomura India said it was expecting the company to consider an open market buyback, similar to the one done in 2019.
Infosys had a net worth of $9.6 billion and net cash of $4.6 billion as of December quarter, and therefore can buy back a maximum of $2.4 billion, based on 25 per cent of its net worth, without shareholder’s approval.
“We expect Infosys to announce a buyback in the range of $1.3-$1.9 billion at a maximum price of Rs 1,650, equivalent to 1.5-2 per cent of the outstanding equity. We reiterate Infosys as our top pick in the Tier-1 IT space with a target price of Rs 1,620,” the brokerage said.
TCS and Wipro recently completed their buyback in January. Infosys last completed its latest buyback in August 2019.
“Infosys, HCL Tech and TechM haven’t announced buyback in last 1.5-2 years. We believe there is further scope to increase payout in terms of buyback /dividends given healthy cash balance and lower payout ratios. Buyback will also offer strong support to current expensive valuations of IT stocks,” Prabhudas Lilladher said.
So far, Infosys has a capital allocation policy to return 85 per cent of its free cash flow (FCF) over a block of five years through a combination of dividends and buyback.
PL said Infosys declared interim dividend of Rs 12 each in the second and the third quarter, a 50 per cent growth over the interim dividend paid in FY20. It felt Infosys is a probable candidate to announce buyback, given its strong FCF/PAT conversion, strong cash balance & lower payout ratio.
Analysts, meanwhile, expect the IT company to report a flat-to-negative sequential growth in fourth quarter profit on a 2-4 per cent quarter-on-quarter (QoQ) rise in revenues.
Sequentially, growth in dollar revenues and in constant currency (CC) terms is likely in 3-5 per cent range.
The IT major is seen logging a marginal fall in Ebit margin sequentially due to wage hikes, higher travel & facility cost partially offset by automation and offshoring.
On a YoY basis, profit growth is seen around 15-22 per cent for the quarter on a 12-14 per cent rise in sales.
Marketmen tracking the sector said the Bengaluru-based firm may guide for FY22 constant currency revenue growth of 12-15 per cent and an Ebit margin guidance of 22-25 per cent for the financial year.
