TCS announces ₹16Kcr share buyback
Buyback price fixed at ₹2,850/share; move to boost investor sentiment, say analysts
The board of Tata Consultancy Services Ltd on Monday approved a plan to buy back up to ₹16,000 crore of its shares, the software services company said in a notice to the stock exchanges.
The firm has fixed a buyback price of ₹2,850 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 ₹2,506.50, up 4.08% on the BSE, on the buyback announcement. This is first share buyback by TCS since its listing in 2004.
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.
According to analysts, the buyback decision is timely, given that TCS is sitting on a cash pile of ₹43,169 crore and the move will also improve investor sentiment.
“After Cognizant (Technology Solutions Corp) and Accenture , it is the right time for Indian IT firms to reward shareholders,”said Apurva Prasad, senior analyst, institutional equities, HDFC Securities Ltd. On February 9, Cognizant announced a $3.4-billion buyback.
The buyback comes at a time when TCS is preparing to start a fresh innings under new 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
“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 Sarabjit Kour Nangra, vice-president of research at Angel Broking Ltd.
TCS said the buyback price of ₹16,000 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, among others.
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 ₹16,000 crore.
Meanwhile, in a notification to the Bombay Stock Exchange, TCS also announced that Chandrasekaran will be its non-executive chairman from Tuesday, PTI reported. “Tata Sons Ltd has nominated N Chandrasekaran as the chairman of the board of directors of the company in place of Ishaat Hussain from February 21. Chandrasekaran will also take charge as non-executive chairman of the board of directors of the company.”
in the first half on Tuesday, 21, February, the board of Tata Sons will meet at the board room at Bombay House, the conglomerate’s iconic headquarters in South Mumbai.
Interim chairman Ratan N Tata, 79, will chair the meeting, which has been called to mark Natarajan Chandrasekaran’s “assumption of charge”, as a Tata spokesperson puts it.
The 53-year old Chandrasekaran will be the first chairman of the $103-billion Tata Group with no family-links to the Tatas, although he has spent all his working life at one company, Tata Consultancy Services. He takes over even as the holding company is in the midst of a legal battle with former chairman Cyrus Mistry who was ousted on October 24.
Within the Tata Group, the belief is that Chandrasekaran “will hit the ground running,” one executive who asked not to be identified, adding that he will likely “first take a hard look at all the difficult companies.”
There he is spoilt for choice. Tata Steel Ltd, Tata Power Co Ltd, Tata Chemicals, Indian Hotels and Tata Teleservices are all in trouble, earning sub-par returns or making losses. Tata Sons is heavily dependent on dividend from TCS. In 2015-16, Tata Motors Ltd and TCS accounted for more than half of the group’s combined revenue, 69% of operating profit, 100.5% of net profit and 80% of all equity dividend paid. Excluding TCS and JLR operations of Tata Motors, the group reported a net loss of ₹160.7 crore.
“I want him to do something that the group doesn’t like. Close down part of the traditional part of Tata Group that is not doing much for the group,” Aswath Damodaran, professor of finance at the Stern School of Business, New York University said in an interview on January 20.
Still, there is no denting that Chandrasekaran’s appointment has soothed the market. The new chairman was named on 13 January. Between then and now, the group’s market capitalisation is up 4.31% at ₹8.45 lakh crore.