Mumbai: The board of Tata Consultancy Services Ltd on Monday approved a plan to buy back up to Rs16,000 crore of its shares, the software services company said in a notice to the stock exchanges.
The firm has fixed a buyback price of Rs2,850 per share, a 13.7% premium to Monday’s closing price. At that price, TCS can buy back up to 5.6 crore, or 2.85%, of its outstanding shares.
TCS shares closed at Rs2,506.50, up 4.08% on the BSE, on the buyback announcement. This is first share buyback by TCS since its listing in 2004.
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The buyback comes at a time when the information technology sector is struggling with pricing pressure and concerns over the likelihood of US curbs on H1B visas given to technology professionals. After Donald Trump became the US President in January, a legislation was introduced in the US House of Representatives proposing to double minimum salary of H1B visa holders to $130,000 from $60,000.
Analysts say the buyback decision is timely, given that TCS is sitting on a cash pile of Rs43,169 crore and the move will also improve investor sentiment.
“After Cognizant (Technology Solutions Corp) and Accenture (Plc.), it is the right time for Indian IT companies to reward shareholders,”said Apurva Prasad, senior analyst, institutional equities, HDFC Securities Ltd. On 9 February, Cognizant announced a $3.4 billion buyback.
The buyback comes at a time when TCS is preparing to start a fresh innings under new chief executive officer (CEO) Rajesh Gopinathan after N.Chandrasekharan moves to Tata Sons Ltd as chairman of the group holding company on Tuesday. Gopinathan will be replaced as chief financial officer (CFO) and vice-president by V. Ramkrishnan, TCS said on Monday.
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The buyback is an indication that TCS shares are under-valued, said Sarabjit Kour Nangra, vice-president of research at Angel Broking Ltd, who has an “accumulate” rating on the stock.
“The buyback will take out a part of cash out of the books; this will enhance the overall return on equity as the proportion of the low-yielding asset ( i.e. cash ) will be reduced in the balance sheet and hence will reward shareholders,” said Kaur.
TCS said the buyback price of Rs16,000 crore does not include any expenses incurred or to be incurred for the repurchase like filing fees, advisory fees, public announcement publication expenses, printing and dispatch expenses, and other incidental and related expenses.
Currently, promoters hold 73.31% of TCS, while foreign portfolio investors hold 16.89%. The buyback to be made on a proportionate basis under the tender offer route will be to the tune of an aggregate amount not exceeding Rs16,000 crore.
