TCS buyback could start a trend in India: Sandeep Tandon, Quant Broking
In a chat with ET Now, Sandeep Tandon, MD & CEO, Quant Broking, says it is a good move when the industry is struggling and structural changes are taking place. It is a good move to enhance shareholder value.
Edited excerpts:
India’s biggest IT company has announced a buyback. Does this indicate that the stock is undervalued?
I will look at it differently. It is a very common practice in US also when your earning momentum is missing, then people try to capitalise or boost their earnings through buyback. If you analyse the US data, one of the historic buybacks happened in 2016 in US and a big kicker came from the earnings in the form of EPS perspective. It is a good move in the current situation when the industry is struggling and structural changes are taking place. It is a good move to enhance shareholder value.
Wipro also did a buyback couple of months ago and the idea was that promoters wanted to avoid the extra dividend tax. About 80% of TCS is currently owned by the Tata Sons Board. Could this be an indirect way where the Tata Sons Board right now wants to encash on some of the their minor holdings and do not want to pay taxes?
Could be but a larger impact is on earning upgrades. EPS has to move up. That is the key focus. You are sitting on a large amount of cash and you are not monetising it. You are not even looking for acquisition which is a clear indication that opportunities are not there. So it is a very wise step, I will say.
Is this an indication that the stock is undervalued?
If you want to read it that way, maybe the answer is yes but the key question comes when you are facing headwinds. What is the impact on the structure change that is happening? What is the impact on the terminal value? Nobody has answer for that right now.
What could be the bottom for TCS?
It will start a new trend. Infosys has also talked about it. This is a good move. This has been a common practice in US. So I say it is one more step in that direction, one way to increase EPS.
Edited excerpts:
India’s biggest IT company has announced a buyback. Does this indicate that the stock is undervalued?
I will look at it differently. It is a very common practice in US also when your earning momentum is missing, then people try to capitalise or boost their earnings through buyback. If you analyse the US data, one of the historic buybacks happened in 2016 in US and a big kicker came from the earnings in the form of EPS perspective. It is a good move in the current situation when the industry is struggling and structural changes are taking place. It is a good move to enhance shareholder value.
Wipro also did a buyback couple of months ago and the idea was that promoters wanted to avoid the extra dividend tax. About 80% of TCS is currently owned by the Tata Sons Board. Could this be an indirect way where the Tata Sons Board right now wants to encash on some of the their minor holdings and do not want to pay taxes?
Could be but a larger impact is on earning upgrades. EPS has to move up. That is the key focus. You are sitting on a large amount of cash and you are not monetising it. You are not even looking for acquisition which is a clear indication that opportunities are not there. So it is a very wise step, I will say.
Is this an indication that the stock is undervalued?
If you want to read it that way, maybe the answer is yes but the key question comes when you are facing headwinds. What is the impact on the structure change that is happening? What is the impact on the terminal value? Nobody has answer for that right now.
What could be the bottom for TCS?
It will start a new trend. Infosys has also talked about it. This is a good move. This has been a common practice in US. So I say it is one more step in that direction, one way to increase EPS.
