In a regulatory filing on Monday, HCL Technologies disclosed that its board is scheduled to meet on July 12 to consider a share buyback proposal. The move comes a little over a year since its last buyback programme announced in May 2017, when the company had said that it will buy back shares at Rs 1,000 apiece, a 17 per cent premium over the trading price.
If HCL Technologies does follow through on the move, it will be the second leading IT firm to take the buyback route this year. Just last month, Tata Consultancy Services had announced a Rs 16,000 crore share buyback plan.
Share buyback is a process of acquisition by a company of its own shares, typically at a price point above the market price. It typically improves earnings per share and return surplus cash to shareholders, while supporting share price during period of sluggish market conditions. Furthermore, it is not only a way to reward shareholders, but is also a more tax-efficient route than dividend payouts.
According to The Economic Times, Indian IT companies have been raising the amount of money they return to shareholders, following a letter sent by activist investor Elliott Management to Cognizant in late 2016. The letter not only outlined a value-enhancement plan for the IT firm but also talked about "shareholder value creation."
The letter reportedly sparked off a flurry of similar requests addressed to Indian IT firms and, in reaction, Infosys completed a Rs 13,000 crore buyback programme last December, the first in the company's over three decade history. Wipro and TCS, too, announced Rs 11,000 crore and Rs 16,000 crore share buyback, respectively, last year. In fact, according to the daily, TCS plans to return about 80-100 per cent of the free cash flow it generates in a year.
In the meantime, reacting positively to the development, HCL Technologies stock opened over 4 per cent higher this morning, at Rs 1,000.05 apiece on the BSE. It is currently trading at Rs 981.25, which is still 2 per cent higher than its previous close.