TCS announces share buyback; Infosys and Wipro may follow

1. TCS announces share buyback; Infosys and Wipro may follow Investors eye a piece of the large cash kitty as growth slows COMPANY NEWS | Barely a week after the US-based software services player Cognizant Technology Solutions, which has several delivery centres in India, announced plans to return $3.4 billion to its shareholders through buyback of shares and dividends, Tata Consultancy Services (TCS), too, said its board would be meeting on Monday to consider a buyback plan. In a statement to stock exchanges on Thursday, TCS said, “We would like to inform you that the board of directors will consider a proposal for buyback of equity shares of the company at its meeting to be held on February 20, 2017.” If approved, this will be TCS’ first buyback since its listing in 2004. The Street took the news positively, as stocks of domestic information technology (IT) pg. 1

2. majors - TCS, Infosys, Wipro, Tech Mahindra and HCL Technologies - were up 1.4-3 per cent on Thursday. When asked about the company’s capital allocation plans, Rishad Premji, whole-time director and chief strategy officer, Wipro, said, “We did a buyback last year worth Rs 2,500 crore. We have a stated dividend payout ratio policy, which is 40-45 per cent, which we have maintained. We have said that on an annual basis, we actively discuss this within the company and evaluate what makes sense with the cash that the company generates. We are open to evaluating options like buyback, special dividends. It makes sense for the organisation, as we move forward.” Buybacks are seen as the preferred route over dividends, as they are more tax-efficient. Besides dividend distribution tax at an effective rate of over 20 per cent, dividend income in the hands of all residents, except domestic companies, trusts or funds, also attracts an additional dividend tax of 10 per cent on dividend income over Rs 10 lakh a year. ALSO READ: Communication with shareholders vital for smooth execution: Rishad Premji In a statement on Thursday, Infosys said it has a clear, defined capital allocation policy, which is periodically reviewed by the board. “We have increased the dividend payout twice in the past three years as a result of this process. The board and the management will continue to review the policy and take a decision at an appropriate time,” the company added. Indian IT services player such as TCS and Infosys have been faced with questions from investors, both large and small, on the utilisation of excess cash and why companies are not returning it to shareholders. “With maturity in growth of Indian IT, the imperative to return excess cash to shareholders is high. We believe there is scope to optimise capital allocation, especially the buyback route, with valuations also at historical lows,” say Apurva Prasad and Amit Chandra, analysts at HDFC Securities, in a note on Thursday. Such calls are backed by strong reasoning and come at a time when business growth is slowing. Headwinds faced by clients in the world’s largest IT market, the US, which account for a large share of revenue for most Indian IT companies, have led to volume as well as pricing pressure for the companies. Donald Trump’s victory as US President and consequent measures to incentivise employment in the US software industry through possible visa and remuneration restrictions for non-US companies have only compounded their woes in recent times. READ FULL STORY pg. 2