TCS Board To Consider Buyback On February 20
The buyback will be the company’s first since its listing in 2004.
Tata Consultancy Services Ltd. (TCS) will consider a buyback of equity shares at its board meeting scheduled for February 20, the company said in a filing to stock exchanges on Thursday.
The buyback, if approved, will be the company's first since its listing in 2004.
Buyback Math
According to Companies Act 2013, companies can buy back up to 10 percent of total net worth without seeking shareholders’ approval, and up to 25 percent after getting shareholders' nod.
If the board approves buying back 10 percent of total net worth, TCS will end up buying 1.7 percent of total equity for Rs 8,210 crore at current market price, according to BloombergQuint’s calculations. A 25 percent buyback will lead to the company buying back 4.3 percent of the total equity, and a cash outflow of Rs 20,524 crore. TCS had cash and marketable securities of Rs 38,831 crore on its books at the end of the December quarter.
The pricing of the buyback issue will determine its success, Girish Pai, the head of research, at Nirmal Bang Institutional Equities told BloombergQuint on the phone.
The buyback should come through. The only question is how much capital is going to be used up and at what price. They have the reserves but the hurdle may be if the buyback is done to the extent of a certain price.Girish Pai, Head of Research, Nirmal Bang Institutional Equities
The company’s board had mentioned earlier that they have been getting suggestions from investors regarding a share buyback.
Outgoing chief N Chandrasekaran also said that they are building up cash to meet their requirements in case of any mergers and acquisitions and that the excess sum has been consistently shared with shareholders.
Will Peers Follow?
TCS’ announcement comes a week after Cognizant Technology Solutions Corp. announced plans to return $3.4 billion to shareholders over the next two years.
Activist investor Elliott Management Corp., which had unveiled $1.4 billion stake in Cognizant in November last year, had said the company can increase buybacks and commit to paying dividends using existing cash and future cash flows, Bloomberg had reported.
TCS’ buyback proposal will prompt its peers in the Indian information technology (IT) sector to consider better ways to utilise the cash on their books, Kawaljeet Saluja, the executive director and head of research at Kotak Institutional Equities told BloombergQuint on the phone.
Capital allocation has been an area of focus for the entire industry and what you have seen with TCS is a step in the right direction. There will be more companies as well who will think of utilising the cash productively in future.Kawaljeet Saluja, ED & HoR, Kotak Institutional Equities
Wipro Ltd. and Infosys Ltd. are among the leading IT companies with more than Rs 30,000 crore cash and marketable securities on their books.
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Earlier this month, Infosys founders had expressed their dissatisfaction with the company’s track record in returning cash to shareholders.