HYDERABAD: Cash reserves of India’s top five IT services firms crashed to $5.8 billion in 2018-19 fiscal from over $10 billion five years ago. Cash and cash equivalents (standalone) of five firms including TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra stood at `38,808 crore as on March 2019 as against `70,539 crore in FY15, translating to a de-growth of 45 per cent. In contrast, their consolidated cash balances increased twofold between FY11 and FY15.
It’s not that companies didn’t stash cash every quarter in last five years. Yet, their reserves plunged as firms, perhaps under shareholder pressure, started utilising unspent cash. While cash reserves of TCS fell 46 per cent, that of Infosys and Wipro reduced by 44 and 34 per cent respectively. HCL and Tech Mahindra are yet to publish FY19 cash balances, and their Q3 figures are considered here for FY19 calculations. So, where’s all the money going?
Increasingly, IT firms are buying back shares with surplus cash that cannot be deployed elsewhere. Last week, Wipro announced a `10,500 crore issue, the third offer in four years. Infosys too announced `8,200 crore buyback last month, while TCS’ offer last year was for an eye-popping `16,500 crore.
Buybacks allow companies to repurchase own shares at a premium and increases promoters’ ownership, which instills confidence in their growth. But analysts argue that buybacks are being pursued for tax purposes. For instance, shareholders can be rewarded with a dividend, but it attracts 15 per cent tax and an additional 10 per cent if dividend income exceeds `10 lakh a year.
Typically, firms having too much cash add additional capacities or acquire businesses. But in case of IT firms, capital expenditure has been dipping for two reasons: One, automation and two, subdued manpower addition. High cash balances and low debt allows companies to chase larger acquisitions, but here too, Indian IT firms have been wary of getting into big-ticket deals.
For instance, TCS insists it is “acquisition-hungry”, but is yet to prove this with actions. One of its largest acquisitions (in absolute terms) dates back to 2013, when it spent `533 crore for Alti SA. Last month, Infosys said it will pick up 75 per cent stake in ABN Amro for `989 crore, but the amount is a fraction of its total reserves.