Infosys - (Current rating - LONG) - Announcing to consider buy back in forthcoming board meeting on 14th Apr 2021

Press release for same: https://www.bseindia.com/xml-data/corpfiling/AttachLive/97adac91-3229-4293-838f-d89926addc68.pdf

Quick take:

1. In 9MFY21 Infosys made FCF worth Rs.148.2bn and assuming 100% FCF/PAT for 4QFY21E Infosys is estimated to make FCF of Rs.199.4bn in FY21E. With its policy of payout at ~85% of FCF cumulatively over a 5-year period, we assume if same ratio if applied for FY21E it will result into payout of Rs169.5bn for FY21E. Of this Infosys already paid interim dividend worth Rs50.89bn till now in 9MFY21 and hence available kitty for consideration of buy back could be up to Rs118-120bn including buy back tax assuming Infosys announces no dividend in 4QFY21E.
2. Infosys in its last buy back worth Rs82.6bn it opted open market purchase which got concluded in Aug 2019. But now with tax ruling changing on buy back which attracts tax we are unclear about how the process will be followed to identify and intimate selling shareholders regarding their shares sold through buy back with open market purchase for them to claim capital gain exemption (we believe that buy back in shareholders hand is tax free). Also we believe in open market promoters can not participate. Also in open market purchase it is cumbersome for ADR shareholders to participate as we believe they need to reconvert ADR into Indian equity shares and again need to reconvert into ADR for share not sold through open market purchase for buy back.
3. Also in tender offer we believe with Infosys’s ADR float is higher and hence it may be cumbersome to get all required approvals for tender offers for ADR shareholders especially.
4. In above scenarios it will be crucial to see which route Infosys follows and we await details.
5. Anyways assuming 85% FCF payout and no dividend to be announced in 4QFY21F, we believe buy back amount (incl buy back) could be close to Rs118-120bn. Assuming 22% buy back tax buy back amount excl tax could be Rs96.7-98.3bn which is around 1.6% of current market cap.
6. Please note above is purely based on our initial understanding and assumptions and it is based on our quick estimates.

Share with all the INFY shareholders.

Thank you... Until Next time...