TCS Share Buyback: Tata Consultancy Services’ (TCS), India’s largest IT services company, Rs 18,000-crore share buyback program which commenced earlier on March 9, is scheduled to end on Wednesday. As per the latest regulatory data available on the BSE website (updated till 4.00 pm on March 22), shareholders had tendered a total of 220 million shares through this buyback. The buyback is being done at Rs 4,500 per share – over 21 per cent premium to the current market price. TCS shares were trading marginally higher at Rs 3,706 apiece on the Bombay Stock Exchange. The buyback offer closes at 5 pm today.
According to HDFC Securities Research, we think that the likely acceptance ratio would be between 45-70 per cent. Even at this low acceptance, an investor buying shares from the market till 21-Feb-22 and tendering the shares in the buyback could make decent absolute and annualized returns, provided the stock price does not fall below Rs 3500 on the payout date.
“Our Institutional team has a one-year target price of Rs 4400 on TCS in their report dated 13-Jan-22. At a price of Rs 3500, TCS will quote at FY24 P/E of 25.5x vs 22.7x for Infosys based on Infosys’s current price. TCS has traditionally quoted at a premium to Infosys,” HDFC Securities said in a note.
As per the details shared initially for the buyback entitlement, TCS had said that in the reserved category for small shareholders, the ratio of buyback will be “1 equity share for every 7 equity shares held on the record date” while in the general category for all other eligible shareholders, the ratio of buyback will be “1 equity share for every 108 equity shares held on the record date”.
Notably, this is TCS’ fourth buyback and, in the earlier three buybacks, Tata Sons was the biggest beneficiary. Experts tracking the company said citing precedence, that Tata Sons, the promoter of the company stands to gain the most from the buyback if it has participated in the offer.
Should You Tender Your Shares?
Analysts say share buybacks also typically improve earnings per share and return surplus cash to shareholders while also supporting the stock during sluggish market conditions.
“Based on the current overwhelming response towards buyback from the retail shareholder, approx. acceptance ratio will be between 14 per cent and 15 per cent. Short-term investors must grab this opportunity and tender their shares. Even the long-term shareholders should tender their shares as the buyback is tax-free. Long-term shareholders should repurchase the tendered shares from the open market. For the non tendered shares, investors can hold the shares because of the strong fundamentals of the company and strong tailwinds in the IT Sector,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Motilal Oswal said that given that the eligibility for the retail portion of the TCS buyback is 44 shares, which is ~44 per cent of the 100 shares, the acceptance ratio could be anywhere between 30-50 per cent. However, this might get lower, as retail participation might have increased over the last ten months and is likely to increase further post the Buyback announcement. “We expect the acceptance ratio to be in the range of 30-50 per cent which could give a potential return of 5-9 per cent (pre-tax) with a time frame of 1-2 months (assuming one is able to sell the remaining un-tendered shares at a price of Rs 3,720), said Motilal Oswal in its earlier note.
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