- Wealth PMS (50L+)
Infosys ex-biggies Bala and Mohandas Pai have requested it to buy back shares worth Rs. 11,200 cr. at the peak price of Rs. 3850. (Economic Times) (HT @b50)
Would that be a good use of its cash?
Looking purely at cash levels – Infosys has:
That’s Rs. 27,300 cr.+ of money that, effectively, lies around doing nothing. For the 57 cr. shares that Infy has, that’s Rs. 478 per share. At the current price of Rs. 3400, that’s about 14% of the share value.
Infy can use that in multiple ways:
The buyback of 11,200 cr. wouldn’t do much. It would just remove 5% of the outstanding capital of the company, at Rs. 3850 per share. Using 40% of the cash reserve to reduce the outstanding shares by just 5% isn’t a great use of cash. (Though it is better than letting it stay)
They could pay a dividend but that would just make the founders richer. The founders aren’t massive spenders so even that money will just lie around doing nothing.
If Infy needs to grow out of that cuccoon it’s built around itself, getting rid of the cash may help. The cash is a comfort zone, and unless it’s used for a daring purpose it will be useless. While I think the best way for them to use it is to acquire, aggressively and big-ticket, the absence of the gut lining within makes me feel that they should just return it to shareholders.