NEW DELHI: Shares of Infosys jumped as much as three percent Wednesday after three top ex-executives urged the Indian outsourcing giant to buy back shares worth $1.8 billion, saying the company is too cash-rich.
The proposal represents the first major challenge for Infosys chief executive Vishal Sikka, who took charge on August 1. He replaced co-founder Narayana Murthy who was recalled from retirement last year to help Infosys regain market share.
An Infosys spokeswoman was non-committal, noting the proposal had come so far from "only three retail investors".
But "should there be any development that will impact our shareholders, we will immediately inform the regulatory bodies", she told AFP in an emailed response.
In a letter to media on Tuesday, former officers V. Balakrishnan, T.V. Mohandas Pai and D.N. Prahlad sought a 112-billion-rupee ($1.8 billion) stock buyback for all shareholders at 3,850-rupees-a-share.
The price would represent a nearly 10-percent premium over the stock's 52-week trading high.
The two former chief financial officers and an ex-senior vice-president said they believed big institutional shareholders "are supportive" of the proposal, which comes as Infosys shifts from being run by a company founder to an outsider.
Analysts called the proposal a "pressure tactic" on the new chief executive to deliver results for investors impatient at longstanding underperformance by the Nasdaq-listed company, a pioneer of India's flagship outsourcing industry.
After rising by three percent earlier in the day, Infosys' shares were up 1.5 percent at 3,557.95 rupees in afternoon trade.
Regardless of funds needed by Infosys involving future innovation or acquisitions, "we strongly believe the company is clearly over capitalised", the ex-executives said, according to local media reports.
The Bangalore-based company, India's second-largest outsourcer by sales, was sitting on 259.5 billion rupees ($4.2 billion) in cash at the end of the last financial year in March 2014.
Cash-flush firms often buy back their shares in a move that can drive up the share price by reducing the amount of stock on offer and boost sagging earnings-per-share.
But critics say buybacks can flatter the bottom-line performance without delivering profit growth based on investment and development.
Infosys' shares have underperformed rivals such as TCS by over 70 percent and HCL Technologies nearly 80 percent over the past five years, analysts say.
"This is a pressure tactic to leave your conservative approach and do something an acquisition, expansion."
"Investors have become impatient," Daljeet Kohli, research head at India Nivesh Securities, told AFP.
Sikka has said the company must revitalise its "low-cost, mundane" software services while creating higher-earning opportunities in fields such as data analytics. (AFP)