Two former directors of Indian software major Infosys Ltd. (NYSE: INFY) are seeking a share buyback worth 112 billion rupees ($1.83 billion), local media reports said Wednesday, pushing the company's stock up by more than 2 percent in mid-afternoon trade on the Bombay Stock Exchange, or BSE.
“Infosys should immediately buyback its shares to the tune of (112 billion rupees),” former board members and chief financial officers T.V. Mohandas Pai and V. Balakrishnan said, in their letter dated July 29, seen by International Business Times. They were joined in their petition by D.N. Prahlad, a former senior vice president of the company.
“The buyback should be at the 52 week high price of Rs.3,850/share,” they said, adding that “Infosys should also announce an ongoing buyback program to the extent of 40 percent of the previous year’s net profits on a consistent basis.” The company's shares were trading at 3576.20 rupees on the benchmark BSE index, on Wednesday.
The share buyback will help recover shareholder value the company has lost over the last three years, in which there has been a “dramatic valuation disconnect” between the company's stock value and that of its peers, the authors of the letter argued. The figure of 112 billion rupees was arrived at based on the current 25 percent limit set by India’s market regulator Securities and Exchange Board of India on share buybacks, the letter explained.
They pointed out that, in the three-year period between April 2011 to July 2014, the broader BSE index gave a return of 34.4 percent while the BSE IT index gave a return of 47.9 percent and, within the IT sector, shares of Tata Consultancy Services Limited (BOM:532540), Infosys’s larger rival, rose 119.2 percent. Infosys rose 4 percent in that time, they said.
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“The Infosys board and the management receives requests on a variety of subjects from shareholders and investors on an on-going basis. These are addressed by the board and the management in due course. In this particular case we have received this request only from three retail investors,” Infosys said, in an emailed statement. “Should there be any development that will impact our shareholders, we will immediately inform the regulatory bodies and shareholders on priority.”
In June, Infosys named former SAP AG executive Vishal Sikka as its new CEO. Sikka took over on Aug. 1, as the first non-founder CEO of the company.
“Infosys today is seeing a major transition from a founder driven company to a non-founder driven company ... while the change is inevitable, the abrupt nature of the change raises some serious concerns not only in our minds but also with many stakeholders,” Pai, Balakrishnan and Prahlad said in the letter, adding that, even after the share buyback, Infosys will have enough money for all its strategic goals.
“Our discussions with few large institutional shareholders of Infosys make us believe that they are supportive of this proposal,” they said.