Tata Consultancy Services (TCS) will begin buying back its shares from today, March 9 and will run till March 23. The 14-day long buyback offer is priced at Rs 4,500 per equity share, a 23.53 per cent premium to the volume-weighted average market price since January 7, 2022, and about 25 per cent higher than the current market price.
The company had set February 23 as the record date for the purpose of determining the entitlement and the names of the equity shareholders who shall be eligible to participate in the TCS buyback. The buyback ratio will be 1 share for 108 equity shares for general investors.
The company plans to buyback 40 million equity shares of Re 1 face value. TCS promoters — Tata Sons and Tata Investment Corporation Ltd (TICL) — intend to participate in the buyback offer by tendering shares worth about Rs 12,993.2 crore, according to a company document filed earlier. Tata Sons, which holds about 266.91 crore shares, intends to tender 2.88 crore shares, while TICL (which holds 10,23,685 shares) intends to tender 11,055 shares, it added. At Rs 4,500 a piece, the two entities will rake in about Rs 12,993.2 crore.
Acceptance Ratio
Historically, TCS has seen 100 per cent acceptance in all three buybacks. However, during the last two buybacks, the market price of the company was on a rising trend and was very close/above the buyback price on the last day of tendering. Thus, many shareholders could have stayed away from the buyback on expectations of a better market price, analysts said.
Motilal Oswal expects the acceptance ratio to be in the range of 30-50 per cent, which could give a potential return of 5-9 per cent within one to two months.
“Considering the historical trend, we assume a high acceptance ratio for the small shareholder category and foresee the buyback to provide a 15-25 per cent return. Short-term investors can consider the opportunity while long-term investors can hold on in view of a long-term positive outlook,” said Vinod Nair of Geojit Financial Services.
Expected Returns
Earlier, Brokerage firm Motilal Oswal had said that a retail investor can get a potential return of 5-9 per cent (pre-tax) with the acceptance ratio to be in the range of 30-50 per cent. The acceptance ratio might get lower, as retail participation might have increased over the last 10 months and is likely to increase further post the buyback announcement.
“Retail investors looking for a short-term opportunity can buy shares of TCS from the open market and tender them in the buy-back offer. One could get a potential return of 5-9 per cent in 1-2 months, provided one is able to sell the remaining un-tendered shares at current price ~Rs3818),” the brokerage had said last month.”
Should You Invest?
TCS, which has been going through some corrections recently is a great long-term bet in the IT sector in India, say, experts. Sonam Srivastava, founder at Wright Research, said: “Not only does the stock have a great deal flow lined up but is also a relatively undervalued and a safer bet in the IT sector, being a large-cap. The company is buying back the shares at a 20 per cent higher price than the market and we can expect a 50-70 acceptance ratio. The great opportunity on buyback price arbitrage and excellent long-term prospects make the TCS buyback a win-win opportunity for investors.”
Mirroring similar thoughts, Divam Sharma, founder at Green Portfolio, said: “The buyback is an opportunity for existing long-term shareholders to arbitrage from tendering the shares. Depending on the acceptance ratio, small shareholders had a high probability to benefit from this offer, considering 15 per cent reservation in this offer. The recent fall in IT stocks present a good opportunity for investing in the company. We believe that blockchain, cloud, digitization, analytics, cyber security, automation will increasingly get large budget allocations from customers and will benefit large companies like TCS over the next few years.”
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