Soft­ware giant to buy back 56 mil­lion eq­uity shares at 2,850 apiece; pres­sure grows on ri­vals

The Economic Times - - Front Page - Our Bureau

Ben­galuru: Tata Con­sul­tancy Ser­vices an­nounced a ₹ 16,000-crore ($2.39-bil­lion) share buy­back, spark­ing a 4% surge in the stock price and in­ten­si­fy­ing pres­sure on ri­vals to fol­low suit as in­vestors clam­our for re­turns amid slow­ing growth.

In­dia’s big­gest IT ser­vices com­pany said it will buy back 56 mil­lion eq­uity shares, about 3% of to­tal eq­uity, at ₹ 2,850 apiece, a 14% pre­mium to the stock’s ₹ 2,506.5 close on Mon­day on the BSE. TCS had an­nounced last week that the board would meet on Mon­day to con­sider the plan.

“The buy­back is pro­posed to be made from the share­hold­ers of the com­pany on a pro­por­tion­ate ba­sis un­der the ten­der of­fer route,” TCS said in an ex­change fil­ing. The move by the Mum­bai-head­quar­tered com­pany comes less than two weeks af­ter ri­val Cog­nizant said it would re­turn $3.4 bil­lion to share­hold­ers — in div­i­dends and in­creased buy­backs — af­ter ac­tivist hedge fund El­liott Man­age­ment ques­tioned the com­pany’s cap­i­tal-al­lo­ca­tion pol­icy.

TCS had $5.69 bil­lion in cash and cash equiv­a­lents and in­vest­ments on its books on De­cem­ber 31. Free cash-flow gen­er­a­tion crossed $1 bil- lion in the third quar­ter.

“This buy­back is far more than I ex­pected,” said an an­a­lyst at a Mum­bai bro­ker­age. “It dwarfs the other buy­backs we have seen among In­dian IT play­ers, though it is still smaller than Cog­nizant’s. But it in­creases the pres­sure on every­body else.”

Fol­low­ing El­liott’s let­ter to Cog­nizant in Novem­ber, in­vestors had be­gun ask­ing In­dian IT firms to boost buy­backs to com­pen­sate share­hold­ers amid a slug­gish growth en­vi­ron­ment, ET had re­ported.

Lo­cal ri­vals In­fosys and Wipro have said their boards re­view cap­i­tal al­lo­ca­tion reg­u­larly.

An­a­lysts said any buy­back by In­fosys would be limited given its ag­gres­sive growth plans

Nadella also gave a thumbs-up to the In­dian gov­ern­ment’s dig­i­tal drive.

“In­dia Stack’s vi­sion of hav­ing a pres­ence­less, cash­less, pa­per­less vi­sion — which is fun­da­men­tally about bring­ing down trans­ac­tional costs in the econ­omy — so that ev­ery cit­i­zen, small busi­ness and large busi­ness can all ben­e­fit, is a grand vi­sion,” said Nadella. In­dia Stack is in­dus­try jar­gon for ap­pli­ca­tions on the Aad­haar plat­form and Uni­fied Pay­ment In­ter­face (UPI).

Nadella has been cred­ited with re­shap­ing and turn­ing around Mi­crosoft af­ter he took over as CEO in Fe­bru­ary 2014. Since then, the com­pany has fo­cussed on a “cloud first, mo­bile first” model, even as it sold off non­core busi­nesses like the phone unit it ac­quired from Nokia. The com­pany has also in­vested heav­ily in data centres across the world and pur­sued new busi­ness seg­ments such as the cloud plat­form busi­ness, where it com­petes with the likes of Ama­zon. Cloud pro­vides the abil­ity of en­ter­prises, es­pe­cially small and medium busi­nesses, to pur­chase com­put­ing and data stor­age ca­pac­ity, rather than in­vest cap­i­tal on their own.

Un­der Nadella’s watch, Mi­crosoft also made the largest ac­qui­si­tion in its his­tory by snap­ping up busi­ness net­work­ing com­pany LinkedIn for $26.2 bil­lion in June 2016.

Nadella al­layed fears that the dawn of ar­ti­fi­cial in­tel­li­gence will lead to large-scale un­em­ploy­ment in heav­ily pop­u­lated coun­tries like In­dia. “In a coun­try like In­dia, where there is go­ing to be a ser­vices-led econ­omy, there are go­ing to be many, many jobs. There are many things AI will never be able to do… (like) show em­pa­thy,” said Nadella. “When there is a lot of ar­ti­fi­cial in­tel­li­gence, real in­tel­li­gence will be scarce, real em­pa­thy will be scarce, real com­mon sense will be scarce. So, we can have new jobs that are ac­tu­ally pred­i­cated on those at­tributes.”

Nadella has been cred­ited with re­shap­ing and turn­ing around Mi­crosoft af­ter he took over as CEO in Feb 2014

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