Infosys Ltd. may announce a buyback of shares worth around Rs 8,400-11,600 crore during the earnings call on Oct. 13, according to Morgan Stanley.
The international brokerage said in a note that India’s second largest IT services firm can potentially return Rs 25,000 crore to shareholders in each of the next two years.
Morgan Stanley looked at Infosys’ three previous share buybacks, which amounted to around 24-33% of the company’s total cash balance at the time. “Assuming a similar ratio of current cash balance, the potential buyback amount would be Rs 8,400-Rs 11,600 crore,” it said.
“This would be tantamount to 34% to 46% of the total potential capital to be returned to shareholders through buyback, which is broadly in line with the five-year average.”
The note stated that since the past two buybacks were done via open offer, the same method could be used to execute the current one, rather than the tender route.
The international brokerage said assuming the buyback is executed evenly over the next six months, it would amount to approximately $8-12 million (Rs 65-98 crore) worth of shares, implying 12.5-17.5% of the daily delivery volumes.
“If the same buyback were executed over a shorter period, the percentage of daily volumes would increase and would also lend support to the stock price, in our view,” the note stated.
Morgan Stanley said Wipro Ltd. could follow Infosys as its last buyback was in October 2020 and is thus eligible for one.
“HCL Technologies Ltd. and Tech Mahindra Ltd. have been less active in using this tool,” the brokerage house said. “Tata Consultancy Services Ltd. won’t be eligible until early next year, based on the criterion of a minimum one-year time gap between buybacks.”
Shares of Infosys gained as much as 1.5% in the first hour of trading. Of the 48 analysts tracking the company, 40 maintain a ‘buy’, six suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 18.8%.