Long-Term Retail Investors CouldIgnoreTCSBuyback
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,