TCS to consider share buyback on June 15; should you tender your shares?

Tata Consultancy Services (TCS), country's largest software services firm, will consider a proposal to buy back shares at its board meeting to be held later this week. The buyback could be worth Rs 10,000-12,500 crore at around Rs 1,975-2,075. The IT major may buyback 1.5 per cent to 2 per cent equities.

Last year, TCS had undertaken a Rs 16,000-crore mega buyback offer, entailing 5.61 crore shares at a price of Rs 2,850 per equity share. The buyback price was fixed at 16 per cent premium.

The buyback process had seen Tata Sons tendering over 3.60 crore shares, accounting for 64.2 per cent of the total shares bought back by the company. Other large investors who participated in the buyback were Government of Singapore, Copthall Mauritius Investments Ltd and EuroPacific Growth Fund.. 

Experts do not expect much premium this year, as last time the sentiment around IT stocks was negative, which has turned robust this year. TCS share price is already up 35 per cent so far this year. 

Should you tender shares in buyback?

Experts believe this would depend on the buyback price. Investors looking to tender their shares must take note that TCS is country's most valuable company in terms of market capitalisation whose fundamentals are strong. 

What if you don't tender?

As already stated, the company is rich in fundamentals. The outlook for the stock is positive. So, investors will definitely make money going ahead. The company offered bonus shares twice in last nine years too.

TCS buyback acceptance ratio

Acceptance ratio is the proportion of shares accepted to the total number of shares tendered in the buyback by investors, including promoters. The ratio is expected to be fixed in the range of 60 per cent to 75 per cent.

What will happen to not accepted shares?

Those shares will re-appear in respective shareholders' dmat account in next three-four days after the completion of buyback. 

WATCH ZEE BUSINESS VIDEO HERE

Should you buy TCS shares now?

Experts advise buying the stock at the current levels. Average brokerage target price is seen at Rs 2,100 against current market price of Rs 1828. 

Why do companies bring in buybacks?

Share buybacks typically improve earnings per share and return surplus cash to shareholders, while also supporting share price during period of sluggish market condition.

Indian IT companies have been under pressure to return excess cash on their books to shareholders through generous dividends and buybacks. Many IT firms, including Infosys (Rs 13,000 crore) and HCL Technologies (Rs 3,500 crore) had undertaken buyback schemes last year.

For FY18, TCS returned Rs 26,800 crore to shareholders in both dividends and the buyback. For the full year, TCS' net cash from operations amounted to Rs 28,160 crore and free cash flow was Rs 26,360 crore.