TCS Rs 16,000-crore buyback offer opens today: Should you tender shares?

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Country's largest software exporter Tata Consultancy Services will open its Rs 16,000 crore share buyback offer for investors on December 18.

TCS has decided to buyback upto 5,33,33,333 equity shares and the floor price for this offer has been fixed at Rs 3,000 per share.

The offer, as per the schedule, will close on January 1, 2021.

This is the third share buyback offer from the company after August 2018 and May 2017.

Experts advised investors to tender their shares in the buyback offer if they want to hold for less than one year period given the good price offered by the company.

"We believe that investors with an investment horizon of less than one year can tender their share in the buyback as it is at a premium to current prices and given the fact that there would be no tax liability in the investor tendering their shares in the buyback," Jyoti Roy- DVP- Equity Strategist at Angel Broking told Moneycontrol.

The stock gained just 3.7 percent from the date of share buyback announcement till December 17, a day before the issue opening. But it already shot up 73 percent from March 19's low and gained 31 percent in the current year 2020 so far.

"At current levels, the stock is trading at a significant premium to other largecap IT companies like Infosys and HCL Technologies which would limit upsides from current levels in the near term despite good long term growth prospects. Moreover, the acceptance ratio is also expected to be low given wide retail ownership of the stock," Roy said.

Going by the past trends and historic data, TCS has given record-breaking compounded returns to every investor with an average 35-50 percent acceptance ratio.

Based on SEBI mandate that companies reserved 15 percent of the buyback for small shareholders with holdings of less than Rs 2 lakh as on the record date which means TCS has to buy Rs 2,400 crore from retail shareholders.

Based on the assumption, "we expect TCS' buyback to have a healthy acceptance ratio in the range of 30-40 percent for retail investors. Considering the current market situation, we believe TCS buyback offers low risk and moderate returns to retail investors and hence we suggest retail investors to tender and participate in the buyback offer," Prashanth Tapse, AVP Research at Mehta Equities said.

The buyback is proposed to be made under the tender offer route, and is open to all eligible shareholders of the company holding equity shares either in physical or electronic form, as on the record date - November 28.

TCS is providing a 5.7 percent returns through buyback offer as on December 17 closing.

The IT company in its offer document said the offer price represented a premium of 29.89 percent and 29.27 percent to the volume-weighted average market price of the equity share on BSE and NSE, respectively, during the three months preceding October 4, 2020, being the date of intimation to the stock exchanges of the date of the board meeting to consider the proposal of the buyback, and a premium of 18.92 percent and 18.88 percent over the closing price of the equity share on BSE and NSE, respectively, as on October 1, 2020, being the last trading date prior to the intimation date.

The current buyback is in line with the company's shareholder-friendly capital allocation practice of returning excess cash to shareholders, thereby increasing shareholder value in the longer term, and improving the return on equity.

As of October 7 this year, promoter and promoter group held 72.05 percent equity stake in TCS.