Business

Infy Answers Critics With Cash: Rs 13k Crore Booty Coming In Dividends & Share Buybacks

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The board announced that in future it will pay out up to 70 per cent of its free cash flows to shareholders as against the current policy of paying up to 50 per cent of post-tax profits.

The higher payouts to shareholders are probably intended to quell future distractions.

Infosys Technologies, which has been at the centre of a corporate governance storm raked up by former chairman and promoter NR Narayana Murthy, appears to have decided to answer its critics with cash.

Apart from announcing a hefty final dividend of Rs 14.75 per share despite a drop in fourth quarter profits, it also announced a future payout of Rs 13,000 crore in 2017-18, either as dividends or share buyback. This would nearly double 2016-17’s dividend payout of Rs 7,119 crore next year.

The board announced that in future it will pay out up to 70 per cent of its free cash flows to shareholders as against the current policy of paying up to 50 per cent of post-tax profits. In 2016-17, the payout policy actually ended up handing out 63 per cent of free cash flows as dividends. So the real step-up is only 7 per cent, but significant nevertheless in the context of what is happening elsewhere.

A more liberal shareholder rewards policy was anticipated by the markets after two of Infosys’s rivals – Cognizant Technologies and Tata Consultancy Services (TCS) – announced share buybacks. While US-listed Cognizant announced a $3.4 billion share buyback, TCS said in February that it would buy back Rs 16,000 crore worth of shares in 2017-18. Infosys’ dividend-cum-buyback offer is for a more modest Rs 13,000 crore, roughly $2 billion. That would be about a third of its cash pile of nearly $6 billion as at the end of March 2017. It would leave enough cash for future acquisitions too.

The buyback has clearly been precipitated by the controversy over governance, where the board and its chairman, R Seshasayee, have been accused by Murthy and other detractors of taking questionable decisions. Among them: giving CEO Vishal Sikka, and more recently, Chief Operating Office UB Pravin Rao, hefty pay packages. Murthy said when top executive salaries go through the roof, it sent out a bad message to employees down the line who received lower salary hikes.

A few months ago, Murthy had upped the ante over the high severance package offered to CFO Rajiv Bansal, flagging corporate governance concerns at the board level.

While Infosys defended the board’s decisions, the company has decided to meet its detractors half-way by announcing the elevation of independent director Ravi Venkatesan as co-chairman. Venkatesan is a highly regarded management professional and currently non-executive chairman of the Bank of Baroda. He was former chairman of Microsoft India.

Infosys has offered a revenue guidance 6.5-8.5 per cent growth in 2017-18, after registering 7.4 per cent growth in US dollar terms last year.

CEO Sikka clearly seems worried about the sniping from Murthy. In a statement issued along with the annual and fourth quarter results, Sikka talked about “unanticipated execution challenges” and “distractions in a seasonally soft quarter” as reasons for concern.

The higher payouts to shareholders are probably intended to quell future distractions.