TCS board clears India’s biggest share buyback; at Rs 16,000 cr, beats Reliance Industries’ Rs 10,440 cr offer

By: |
Mumbai | February 21, 2017 7:10 AM

The board of Tata Consultancy Services, the country’s largest software company, on Monday approved a proposal to buy back 5.61 crore shares worth R16,000 crore.

The company had a net worth of R65,360.56 crore at the end of FY16, data from Capitaline showed.

The board of Tata Consultancy Services, the country’s largest software company, on Monday approved a proposal to buy back 5.61 crore shares worth R16,000 crore. This is the biggest buyback offer, surpassing Reliance Industries, which had come with a buyback offer of R10,440 crore in 2012. The board meeting was the last for N Chandrasekaran as the CEO of the company. Chandrasekaran is set to take over as the chairman of Tata Sons, which owns TCS.

The offer constitutes 24.47% of the company’s consolidated net worth. The company had a net worth
of R65,360.56 crore at the end of FY16, data from Capitaline showed. It also represents 2.85% of the total paid-up equity capital of the company. The buyback is to be made to the shareholders of the company on a proportionate basis under the tender offer route.

The buyback offer is for R2,850 per share, 13.7 % more than its closing price of R2,506.50 on Monday on the BSE. In fact, the company’s shares rallied 4.08% to close at R2,506.50 on the BSE, the highest closing price in five months.
The company had cash and equivalents of R38,831 crore as of December 31, 2016. The promoters had 73.33% of the shares in the company as on December 2016. This is the first time TCS will be buying back its shares.

Last week US-based software services player Cognizant Technology Solutions, which has centres in India, announced plans to buy back shares worth $3.4 billion.

Recently two former chief financial officers of Infosys, the second largest IT company, had also demanded the buyback of its shares. Last year, Wipro, one of the five largest Indian IT firms, completed its buyback worth R2,500 crore. In CY2016, firms spent more than R26,853 crore on buybacks, the highest since 2011.

Buybacks have become the preferred route over dividends as dividend income in the hands of all residents, domestic companies, trusts or funds except those established for religious, educational or charitable purposes, and attracts an additional dividend tax of 10 % on dividend income over R10 lakh a year.

In a note to investors, Jefferies said the case for buybacks has become stronger for Indian companies in recent times. “Cash levels remaining well above comfort levels of management, strong cash flows generation and low capital-intensive nature of business and slowing growth provide support to the argument in favour of buybacks,” it said.

The report further said that for the IT sector, which is affected by immigration reforms and concerns on slowing growth and margins, the potential buyback would be seen as positive especially in the light of shareholders’ demands to return cash and boost returns.

“At the same time, we believe that a longer-term capital allocation and cash return strategy would augur well in addition to returning just the current cash pile,” the note added.

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