It is kind of ironical when you read that Indian IT companies remain obsessed with cash and hold large cash balances. That too at a time, when the mere mention of the word cash is seen as a kind of sin in India. Well yes I know that Indian IT companies do not hold cash as people do.
But still it makes for a weird feeling. On one hand it is the IT companies which are directly or indirectly behind the war on cash. But on the other hand, they hoard so much cash balances. Cash after all is king whether for individuals or companies.
While the large technology players in the global market are on an acquisition spree, Indian IT majors are sitting on piles of cash. Last year (2015-16), TCS reported a total of ₹29,000 crore of liquid funds in its balance sheet. In the numbers reported for the nine months ending December 2016, the cash balance (with current investments) bloated further to ₹38,406 crore.
Similarly, Infosys (₹30,480 crore) and Wipro (₹30,000 crore) too have a large hoard of cash. In the table below, you can see that for IT companies, cash makes for 30 to 40 per cent of assets. This stunts returns for shareholders as the cash kept in bank deposits, government bonds or liquid mutual funds generates poor returns.
After a hue and cry from investors, TCS recently announced a buyback for ₹16,000 crore. But the numbers show that the company has been very miserly.
The buyback will use only about 40 per cent of the cash with the company. Also, since the offer is for only 5.6 crore shares and the total outstanding shares are 197 crore, there is not going to be any significant increase in EPS which can make the stock price go up, post the buyback.
Infosys has been doing a better job when it comes to sharing profits with shareholders. The dividend pay-out ratio has increased from 30 per cent in 2011-12 to 40 per cent in 2013-14 and 50 per cent in 2015-16. Since 2007, it has made three bonus issues (in the ratio of 1:1). But that said, given that the stock performance of the company has been bad in the last five years relative to TCS, the total return (assuming dividend has been re-invested) is better for TCS compared to Infosys.