Infosys, India’s second-biggest software exporter, on Thursday announced plans to return Rs 13,000 crore from its cash pile to shareholders after it reported an almost flat net profit in the March quarter and sales outlook that fell short of estimates.
Yielding to pressure from a group of founders and former executives, the company announced a share buyback programme and a pledge to raise dividends.
It 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 per cent of annual free cash flow as dividend compared to a previous policy of sharing up to half its post-tax profit.
For the January-March quarter, Infosys reported a 0.2 per cent rise in consolidated net profit at Rs 3,603 crore while revenue grew 3.4 per cent to Rs 17,120 crore.
In 2017-18 (April 2017 to March 2018), the company expects revenue to grow 6.5 per cent to 8.5 per cent in constant currency terms.
The stock fell over 3 per cent to Rs 935.05 in afternoon trade.
On a sequential basis, Infosys’ net profit fell 2.8 per cent while revenue declined 0.9 per cent.
“Unanticipated execution challenges and distractions in a seasonally soft quarter affected our overall performance,” said CEO Vishal Sikka.
Sikka is grappling with twin problems of high-profile founders led by N R Narayana Murthy publicly criticising governance style, including salary hikes to top executives, and a visa crackdown by American President Donald Trump that will make it harder for companies like Infosys to send employees to work in the US.
He added: “Looking ahead, it is imperative that we increase our resilience to the dynamics of our environment and we remain resolute in executing our strategy, path to transform Infosys and drive long-term value for all stakeholders.”
Infosys, which has about USD 6 billion on its books, follows industry peers Cognizant and Tata Consultancy Services in announcing share buyback.
Cognizant had announced a USD 3.4 billion buyback while TCS is returning Rs 16,000 crore to its shareholders.
Two of Infosys’ former CFOs — T V Mohandas Pai and V Balakrishnan — had recently exhorted institutional investors to raise questions about the huge cash pile on the company’s books, saying investors have an obligation to protect their investment.
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 USD 4 billion on its balancesheet.
Infosys earnings set the tone for other technology companies, with TCS slated to report its results on April 18 and Wipro on April 25.
Market watchers said Infosys’ outlook for 6.5-8.5 per cent revenue increase for 2017-18 is disappointing as peers like Cognizant have guided for higher growth.
Cognizant, which follows January-December fiscal, expects its revenue to grow 8-10 per cent in constant currency terms during 2017.
In US dollars terms, Infosys net profit was up 1.8 per cent at USD 543 million for the March quarter while revenue grew 5 per cent to USD 2.5 billion.
For the full year, net profit grew 4.3 per cent to USD 2.1 billion while revenue was up 7.4 per cent to USD 10.2 billion.
The board has recommended a final dividend of Rs 14.75 per share for 2016-17.
Infosys added 601 (net) employees in the March quarter, taking its overall headcount to 2,00,364 people. Its attrition stood at 17.1 per cent.
On US visa-related concerns, Sikka said the role of visas in the tech industry has become too strong over the last 15 years.
“We have to deliver value to our clients… We have to live with the visa problem,” he said, prescribing “a healthy mix of local and global talent” to overcome such challenges.