BENGALURU:The share buyback by Indian IT services companies that resulted in high shareholder returns impeded some IT services’ ability to respond to business demands, said global rating agency Moody’s Investors Service.
“However, high levels of cash outflows to shareholders are reducing the ability of Indian IT services companies to respond to business demands, including the acquisition of new technology, as well as research and development to meet fast-evolving customer needs,” said Saranga Ranasinghe, a Moody’s assistant vice-president and analyst.
Indian IT services majors like Infosys, Tata Consultancy Services (TCS), Wipro and HCL Technologies had announced share buybacks in the last few years.
For example, India’s largest IT exporter TCS in June this year announced buyback of up to 7.61 crore equity shares at a price of Rs 2,100 per equity share at an overall consideration for about Rs 16,000 crore. Infosys also did a buyback of over 11.30 crore shares at Rs 1,150 apiece for Rs 13,000-crore in a buyback offer. Similarly, HCL Technologies and Wipro also did buyback of shares at a consideration of Rs 4,000 crore and Rs 11,000 crore respectively.
Moody’s pointed out that five of the six Moody’s-rated Indian IT services companies returned on average around 130 per cent of cash flow from operations less capital spending to shareholders in the last 12 months.While TCS and Infosys constitute two of the five companies, both show large cash balances of around $6.6 billion and $4.8 billion respectively, and are largely debt free.
“TCS and Infosys, therefore, have the financial strength to invest in their businesses and respond to external pressures, despite their high shareholder payouts,” added Ranasinghe. “By contrast, Genpact, Marble II and HT Global IT Solutions retain little cash for growth spending, after returning large amounts to shareholders.”
The agency also explained that Genpact, Marble and HT Global IT Solutions have limited ability to incur fresh debt at their current rating levels.
Growth forecast
Moody’s said the global IT services industry is set to grow strongly over the next 18-24 months, driven by demand for digital solutions, which will more than offset the declines in legacy infrastructure outsourcing.