Infosys, India's second-biggest software exporter, has announced plans to return Rs 13,000 crore via share buyback and dividends, yielding to pressure from a group of founders and former executives.
The move came as the once-bellwether of the IT sector reported an almost flat net profit in the March quarter and sales outlook that fell short of estimates.
The company also appointed Ravi Venkatesan, an independent director, co-chairman in a bid to address the founders' corporate governance concerns.
It will begin to pay 70% of annual free cash flow as dividend compared to a previous policy of sharing up to half its post-tax profit.
However, former CFO of Infosys V Balakrishnan said the company's decision to return Rs 13,000 crore to shareholders is "too little" and appointing a co-chairman would make the structure much more complex at board level.
"I think it's a good step forward but the quantum could have been bigger because they have Rs 40,000 crore on their balance sheet. Returning Rs 13,000 crore is too little," he told a news agency.
"On go-forward basis, returning 70% of free cash flow is almost similar to what they (Infosys) have today -- that is 50% of net profit," Balakrishnan said.
Infosys CFO M D Ranganath said the company is focussed on efficiency and margins.
"Capital allocation policy clearly says (it will be) up to Rs 13,000 crore. This takes into account our cash needs for the next couple of years," he said, adding that this will leave the company with about $4 billion on its balance sheet.
"With the performance that we have seen in the last few quarters, obviously it was already a difficult thing, now it is an incredibly difficult thing... (but) it is something we continue to aspire to be," he said.
"The major disappointment came at the guidance front, which clearly indicates there is weakness in demand due to Brexit and the visa-related issues," said a Mumbai-based analyst.
"Particularly the downward revision of Ebit margin guidance points out to the expected/likely rise in cost on account of need to open the development and training centres in the US," she said.
During the current year, the company increased its payout ratio to about 50%. These two developments are going to be good for the shareholders, said Sarabjit Kour Nangra, VP-research- IT, Angel Broking.
KEY TAKEAWAYS FROM INFOSYS RESULTS
- FY18 guidance: Infosys gave out guidance for 6.5-8.5% revenue growth in constant currency terms in FY18
- Capital allocation: The company expects to pay out up to 70% of the free cash flow by way of dividend and/or share buyback
- Sectoral show: Revenue from the ECS segment grew 2.8% quarter on quarter while that from BFSI sector grew 0.5%.
- Total income: Total income of the company slipped 3.32% to Rs 17,273 crore from Rs 17,866 crore reported for the previous quarter
- Geographical break-up: The company reported 1.2% qoq rise in US revenues, while Europe saw a 1.6% drop qoq
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However, former CFO of Infosys V Balakrishnan said the company's decision to return Rs 13,000 crore to shareholders is "too little" and appointing a co-chairman would make the structure much more complex at board level.
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