Tata Consultancy Services’ share buyback received decent response with the offer being subscribed over twice the offer size on the BSE at the end of the issue period today, May 31. Shareholders have tendered more than 12.4 crore TCS shares on the BSE against the 5.61 crore shares the company wants to repurchase at a tempting price of Rs 2,850 per share.
Earlier this month, India’s largest information technology services company TCS opened its buyback offer to buy back 5.61 crore shares through the tender route at a fixed price of Rs 2,850 per share on a proportionate basis for an aggregate amount of Rs 16,000 crore. The buyback comprised just 2.85% of the company’s paid up capital. Record date was May 8, meaning that only those holding the shares on May 8 in the company records would be eligible to tender their stock.
The buyback price was at a mouth-watering premium of 18% over the closing price of Rs 2,408 on February 17, the last trading session before the buyback was announced. TCS shares, which ran up about 7% since then to Rs 2,572 till yesterday, fell later today. TCS shares ended down 0.44% to Rs 2,540 amid flat benchmark markets.
Several experts have suggested exiting the stock in the absence of growth triggers and challenges to the business. Research and brokerage firm HDFC Securities has a ‘Neutral’ rating on TCS shares with a target price of Rs 2,520. “The margin outlook (26-28% EBIT)… comes with its downside risks (largely currency-related). Structural headwinds (including a shorter contract duration) in TCS’ BFSI and Retail & CPG verticals (53% of revenue) are reflecting in its underperformance vs Infosys,” HDFC Securities said in a recent research report.
Credit Suisse also said in a recent research report that concerns over lack of growth, rupee appreciation, and US immigration curbs could remain overhang on TCS in the absence of a cyclical pick up. Similarly, Motilal Oswal too has a ‘Neutral’ rating on TCS shares with a target price of Rs 2,400 on account of an expected margin contraction due to adverse currency movement, and an expected pressure on the significant premium in the stock price.
On the other hand, another firm, PhillpCapital has rated TCS at ‘Sell’ with a target price of Rs 2,000. Nirmal Bang has also rated the company at ‘Sell’ with a target price of Rs 1,996, as it expects the stock to trade at par with Infosys in the coming days. “Positive sentiment of clients around likely change in business/regulatory environment in the US has not translated into improved spending and is dependent on the Trump administration’s moves,” Nirmal Bang said in a recent research report.