TCS Share Repurchase: Tata Consultancy Services’ (TCS), India’s largest IT services company, the buyback program of Rs 18,000 crore shares that started earlier on March 9, is expected to end on Wednesday. According to the latest regulatory data available on the BSE website (updated as of March 22, 4pm), shareholders had tendered a total of 220 million shares through this repurchase. The buyback will be made at Rs 4,500 per share, a premium of more than 21 percent over the current market price. TCS shares traded marginally higher at Rs 3,706 each on the Bombay Stock Exchange. The redemption offer closes at 5pm today.
According to HDFC Securities Research, we think the likely adoption rate will be between 45-70 percent. Even at this low acceptance, an investor who buys shares from the market until Feb 21-22 and offers the shares for redemption can earn decent absolute and annualized returns, provided the share 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 is trading at FY24 P/E of 25.5x vs 22.7x for Infosys based on Infosys’ current price. TCS traditionally trades at a premium to Infosys,” HDFC Securities said in a note.
According to the details initially shared for the right to repurchase, TCS had said that in the reserved category for small shareholders, the repurchase ratio will be “1 share of shares for every 7 shares held on the record date”, while in the general category for all other eligible shareholders, the repurchase ratio will be “1 share of shares for every 108 shares held on the Record Date”.
Notably, this is TCS’s fourth buyback and Tata Sons has been the largest beneficiary in the previous three buybacks. Experts following the company said citing priority that Tata Sons, the company’s promoter, could get the most out of the buyback if it participated in the bid.
Should you offer your shares?
Analysts say that share buybacks also typically improve earnings per share and return excess cash to shareholders, while also supporting the stock during sluggish market conditions.
“Based on the current overwhelming response to buybacks from the retail shareholder, approx. acceptance rate will be between 14 and 15 percent. Short-term investors should seize this opportunity and offer their shares. Even the long-term shareholders should offer their shares as the repurchase is tax free. Long-term shareholders must repurchase the shares offered on the open market. For the unlisted shares, investors may keep the shares due to the company’s strong fundamentals 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, that is ~44 percent of 100 shares, the acceptance rate could be anywhere between 30-50 percent. However, this could go lower as retail participation may have increased over the past ten months and is likely to increase further after the buyback announcement. “We expect the adoption rate to be in the 30-50 percent range, which could yield a potential return of 5-9 percent (before tax) over a 1-2 month timeframe (assuming someone is able to to sell the remaining unoffered shares at a price of Rs 3,720), Motilal Oswal said in his earlier note.
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