The company made a public issue in January last year. The stock price has lost 27% since the announcement of the buyback in April
Moneylife Digital Team
Infinite Computer Solutions India, which made an initial public offering (IPO) in January 2010, is undertaking a buyback of shares amounting to Rs27 crore, raising serious questions in the minds of shareholders.
Since the announcement of the buyback on 12 April 2011, the Infinite Computer Solutions stock price has lost 27%. Companies are known to undertake a buyback usually when they have surplus cash and have no plans to spend it any other way.
The company gave an interim dividend of Rs2 and a special dividend of Rs1 in November 2010. So why has the company decided to buy back its shares within such a short time after the public issue? What's even stranger is that even the company's managing director and some other officials are said to be selling their shares in the market since the buyback announcement. 
The Infinite Computer Solutions public issue in January last year was oversubscribed 43 times. The issue received bids for 41.81 crore shares against the 97.7 lakh shares on offer. The portion reserved for qualified institutional buyers (QIB) was subscribed 48.44 times. The non-institutions portion was subscribed 106.1 times and the retail portion 11.07 times.
Now, the company is buying back shares from the market, at a price which it has said will not exceed Rs230 per share. The maximum offer will be up to Rs27 crore.
In a public notice, the company has informed that it has already bought back 4.01 lakh shares, about 59,000 shares through deals on the Bombay Stock Exchange (BSE) and 3.42 lakh shares on the National Stock Exchange (NSE), up to 10th June. For this, the company has paid out Rs6.33 crore.
On the matter of dividends, the company said in its annual report, "After careful assessment of the funds required by the company for expansion, your directors have recommended that the earnings of the company are to be ploughed back and hence do not wish to recommend any dividend for the financial year ended 31 March 2010."
One retail investor who has shares of Infinite Computer Solutions said, "If that is the case, then why did the company come with a buyback offer?"
It has been just 16 months since the company came out with a public issue and it has already announced a buyback of shares. Does it mean that the company generated enough profit to buy back its shares? A closer look at the financials suggests otherwise.
The operating margin for the March 2011 quarter crashed to 13.92% from 25.82% in the December 2010 quarter. Net profit fell to Rs7.24 crore compared to Rs12.40 crore in the previous quarter.
Little wonder then, that since the buyback announcement the stock has reacted sharply. Even today, the stock lost over 4% to close at Rs134.10 on the Bombay Stock Exchange.
According to information available, in the past few days the company's managing director and CEO, Upinder Zutshi, has sold 1.6 lakh shares in the market. Other associates, like whole-time director, Navin Chandra, has sold 14,097 shares, and compliance officer, Sanjeev Gulati, has sold 10,000 shares. This is strange considering that the management wants to buy back its shares.
"The CEO is selling shares at low current market price. They want to buy back as the stock price is well below its intrinsic value," the retail investor said, requesting anonymity.
Moneylife sent a detailed e-mail query to the company, but there has been no reply yet.