Long-Term Re­tail In­vestors CouldIg­noreTCSBuy­back

The Economic Times - - Brands & Companies -

ET In­tel­li­gence Group: The­p­ro­posed­price at ₹ 2,850 for Tata Con­sul­tancy Ser­vices’ (TCS) buy­back of­fer is at 13.7% pre­mium to the Mon­day’s clos­ing price of the share at ₹ 2506.6. The to­tal non-pro­moter hold­ing in TCSis26.7%.Of this,ama­jorchunkof 22.2% is held by fi­nan­cial in­sti­tu­tions while re­tail in­vestors hold around 4%. Con­sid­er­ing the size of the buy­back is­sue at 5.6 crore shares, the ac­cep­tance ra­tio for re­tail in­vestors works out to be just over 2.9%. Given this and a mod­est­buy­back­premium,re­tail in­vestors with a long-term view on the com­pany will be bet­ter off by not ten­der­ing their shares.

On Mon­day, TCS, the coun­try’s largest soft­ware ex­porter, an­nounced a share buy­back worth up to ₹ 16,000 crore, the largest by an In­dian com­pany so far. The of­fer is sub­ject to share­hold­ers’ ap­proval. The com­pany’s de­ci­sion comes amid pres­sure on its stock due to chal­leng­ing busi­ness sce­nario. Delay in de­ci­sion­mak­ing­by­clientson­large­pro­jects,back­lash on for­eign em­ploy­ees work­ing on H-1B visa in the US, which is the largest mar­ket for In­di­anIT­firms,andtech­no­log­i­cal­shiftin­ser­vices of­fer­ings are some of the head­winds.

The TCS stock has failed to gen­er­ate mean­ing­ful re­turn for the past two cal­en­dar years. The­p­ro­posed­buy­backan­dit­spremi­u­mover the cur­rent mar­ket price re­flect the man­age­ment’s per­cep­tion of the ex­tent by which the com­pany’scur­rent­val­u­a­tion­swaysfromthe per­ceived in­trin­sic value. At the pro­posed buy­back price, the stock is val­ued at 19.5 times the ex­pected FY18 Bloomberg con­sen­sus earn­ings of ₹ 143.3. For re­tail in­vestors who par­tic­i­pate in a buy­back of­fer, while it means cash ben­e­fit in the short term, it also means re­duc­tion in ex­po­sure to ben­e­fits from long-term growth in the form of div­i­dends and cap­i­tal ap­pre­ci­a­tion. Not­with­stand­ing the cur­rent chal­lenges and given its wide port­fo­lio of ser­vices and large client base, TCS looks well poised to take ad­van­tage of a turn­around in the busi­ness mo­men­tum as and when it hap­pens. There­fore, long-term in­vestors may find it more lu­cra­tive to stay in­vested in the TCs counter. JU­DITH LEYSTER,

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