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