Infosys will buy back shares at ₹1,750 in the open market
- Infosys has announced that it will be buying back shares for a maximum of ₹1,750 apiece, which is a 25.2% premium over the prevailing share price in the market.
- The IT giant also announced a dividend of ₹15 per equity share.
- Companies buy back shares in the market, at a price higher than what is prevailing in the market, usually to signal confidence in the future prospects or to say that the shares are undervalued.
The tech behemoth announced a buyback of equity shares worth ₹9,200 crore and will be doling out a dividend of ₹15 per equity share. However, this time around, it's not a tender buyback but an open market buyback. This means ₹1,750 is the ceiling price, but that the shares could be bought back for a lesser price. The quantum of shares that are bought back will be determined accordingly.
That’s over $2 billion in buyback and dividend for its shareholders this quarter.
AdvertisementAnalysts had predicted that the shares would go for anywhere between a 10% to 15% premium and it seems Infosys landed on the higher end of the estimate. . The buyback price of ₹1,750 per share is a 25.2% premium to the closing price on April 13.
The plan is to buyback 52 million shares or 1.23% of the total paid up capital.
The company is rewarding shareholders after a good year
The company saw its revenue grow by 2% in January to March as compared to the previous quarter. And revenue from digital, now, officially accounts for more than half of the money that Infosys is bringing in.
After a blockbuster second quarter, where the company brought in $7.13 billion in new deals, it was only able to $2.1 billion in the last three months.
What’s the good news? The management expects the next 12 months to be even better. The annual growth guidance is for a 12-14% growth in revenue in dollar terms — without accounting for exchange rate fluctuations. That’s more than twice the 5% growth clocked in the year ending March 2021.
If the uptrend for the IT services industry continues, shareholders can expect an even better buyback price next year.
Companies buy back shares in the market, at a price higher than what is prevailing in the market, usually to signal confidence in the future prospects or to say that the shares are undervalued.
Here’s why Infosys is buying back shares
However, since the Indian government announced that dividends will be taxable as per the effective rates for corporate shareholders — more commonly known as promoters — in July 2020, some companies have opted for the buyback route to save tax.
AdvertisementDividends are subject to ordinary income tax whereas share buybacks are taxed at a capital gains tax rate, which is lower.
|Highest income tax slab||30%|
|Short term capital gains tax||15%|
|Long term capital gains tax||10%|
Correction: An earlier version of the story said that the buyback price was higher than expected. Changes have been made to clarify that the buyback price of Rs. 1750 is the maximum price. Since the company plans to buy its own shares from the open market, the price may even be lower at times.
Infosys had a great year but CEO Salil Parekh expects the next one to be more than twice as good
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