TCS Board Approves Rs 16,000 Crore Buyback At Rs 2,850 Per Share
TCS will use Rs 16,000 crore of its cash to buy back shares from shareholders.
The board of Tata Consultancy Services Ltd. (TCS) approved a buyback of equity shares at Rs 2,850 per share, an 18.4 percent premium to Friday’s closing price.
The company will buy back up to 5.61 crore shares or 2.85 percent of the total outstanding equity, for an aggregate amount not exceeding Rs 16,000 crore, the company said in a filing to the exchanges.
The buyback is proposed to be made on a proportionate basis under the tender offer route using the stock exchange mechanism, TCS added. It is subject to approval of shareholders by means of a special resolution through a postal ballot.
The company’s cash and current asset reserves stood at Rs 38,953 crore, while its networth stood at Rs 82,096 crore as on December 31, 2016, according to the company’s filings.
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.
Earlier this month, Cognizant Technology Solutions Corp. agreed to buy back about $3.4 billion of shares over the next two years, after activist investor Elliott Management Corp. demanded that the company boost returns to shareholders.
The TCS stock rallied as much as 6.1 percent to Rs 2,555 immediately after the announcement, before paring gains and closing 4 percent higher at Rs 487.05.
Bhavin Shah, the founder of Sameeksha Capital expects investors to tender to the buyback which is priced at a premium to the current market price.
It’s a good buyback and a sizeable one. It represents a good chunk of their cash balance and annual accruals and this increases the dividend pay-out. The price encourages everyone to tender their shares. With respect to impact in the share price, some of this was expected. I am not sure this move itself warrants an upmove. If the company manages to convince shareholders that it could hold more buybacks in the future, then I think it could lead to rethinking of the stock for a lot of people.Bhavin Shah, Founder, Sameeksha Capital
What The Buyback Means For Earnings Per Share
Assuming the company is able to buy back 2.85 percent of equity, its total number of outstanding shares will fall from 1.97 crore shares to 1.91 crore shares. Bloomberg consensus projects earnings per share (EPS) for financial year 2016-17 at Rs 133 per share but with the fall in outstanding equity, its estimated EPS will increase by 3 percent to Rs 137 per share according to BloombergQuint’s calculations.