Infosys to return 85 pc free cash via buyback, dividend over 5-year period

Bengaluru: India's second-largest IT firm Infosys on Friday said it has enhanced its capital allocation plan and from 2019-20, it will return 85 per cent of free cash flow cumulatively over a five-year period via share buyback and dividends.

The Bengaluru-based company's existing policy was to pay up to 70 per cent of the free cash flow annually by the way of dividend and/or buyback.

The board has reviewed and approved a revised capital allocation policy of the company after taking into consideration the strategic and operational cash requirements, Infosys said.

Infosys Chief Financial Officer Nilanjan Roy said, "Continuing our objective of improving shareholder returns, we have revised our capital allocation policy upwards".

Effective from the financial year 2019-20, Infosys expects to return about 85 per cent of its free cash flow cumulatively over a five-year period through a combination of semi-annual dividends, buyback and/or special dividends, it said.

Infosys added that it is on track towards completing its previously announced share buyback of Rs 8,260 crore and has bought back shares worth Rs 5,934 crore till date. The board has approved a continuation of buyback this quarter.

The development comes at a time when the government has proposed that listed companies be liable to pay additional tax at 20 per cent in case of share buyback as is the case currently for unlisted companies.

Apart from Infosys' ongoing buyback programme, such a levy would affect peers such as Wipro also that has announced an Rs 10,500-crore share buyback plan.

Share buybacks offer a route for companies to return some wealth to their shareholders, while potentially boosting their stock prices. Buying back stock is also a route to make a business look more attractive to investors. By reducing the number of outstanding shares, a company's earnings-per-share ratio is automatically increased.

Infosys said it has sufficient cash on its balance sheet to the tune of USD 3.5 billion.

"The shareholders have been telling us loud and clear that you should rather give us the cash back...We have kept the 15 per cent for any tuck-in acquisitions. Our balance sheet is still strong, and healthy, we still have 3.5 billion so we can, at point of time, dig in these reserves," Roy said.