Tata Consultancy Services’ Rs 18,000-crore share buyback program which commenced earlier on March 9, is scheduled to end on Wednesday. Earlier, till Tuesday, 22 crore shares were tendered, 5.5 times what company intends to repurchase. This buyback program is one of the largest equity buybacks offered in the country under which TCS will buy back 4 crore shares, or 1.08 per cent of its equity. The buyback is being done at Rs 4,500 per share – over 21 per cent premium to current market price. TCS shares were trading marginally higher at Rs 3,706 apiece on the Bombay Stock Exchange. The buyback offer closes at 5 pm today.

According to Edelweiss Alternative Research, the acceptance ratio for retail investors could be 14.3% – meaning one share could get accepted in the buyback for every 7 shares tendered. For non-retail investors, only one share could get accepted for every 108 shares tendered. The expected acceptance ratio is lower than TCS’ previous buybacks. Historically, TCS has seen 100% acceptance in all the three buybacks. During the last two buybacks, the market price was on a rising trend and close to the buyback price on the last day of tendering. This time, though, there is a gap between the buyback price and the market price.

TCS will buy back its shares at the rate of Rs 4,500 per share, and the stock is currently trading around Rs 3,696. Thus, there is a profit of more than Rs 800 on each share. If you are a TCS shareholder on the Record Date, you can participate in the buyback. An eligible shareholder may participate in the buyback by downloading the Tender Form from the websites of the company and the Registrar to the issue.

Should you tender your shares?

“TCS offers twin benefits to its investors, first in terms of attractive valuations and secondly as a leader in the IT industry. The overall sector has a positive outlook in the long term well supported by a depreciating rupee which makes most of the revenues from the overseas market. We recommend short term investors to also consider the buyback due to the high acceptance ratio from a historical perspective,” Ravi Singh, Vice President and Head of Research ShareIndia, said.

Motilal Oswal said that given that the eligibility for the retail portion of the TCS buyback is 44 shares, which is ~44% of the 100 shares, the acceptance ratio could be anywhere between 30-50%. However this might get lower, as retail participation might have increased over the last ten months and is likely to increase further post the Buyback announcement. “We expect the acceptance ratio to be in the range of 30-50% which could give a potential return of 5-9% (pre-tax) with a time frame of 1-2 months (assuming one is able to sell the remaining un-tendered shares at a price of Rs 3,720), said Motilal Oswal in its earlier note.

“For short-term retail investors, it looks lucrative to offer shares at buy-back price of Rs 4,500 while any non-accepted shares can be sold post the completion of bid or hold on long-term basis. Currently the stocks is trading at 31x 1Yr fwd PE which is at premium compared to 5 year Avg of 24x, supported by current tailwinds in IT industry. We can presume some moderation in price in the near-future. However, considering the historical trend, we can assume high acceptance ratio for small shareholder category. Based on the cost of recent stock price and likely price post the completion of buy-back offer, retail investors can expect short-term return of 10 to 20%,” said Vinod Nair, Head of Research at Geojit Financial Services.

“Based on the current overwhelming response towards buyback from the retail shareholder, approx. acceptance ratio will be between 14% and 15%. Short-term investors must grab this opportunity and tender their shares. Even the long-term shareholders should tender their shares as the buyback is tax-free. Long-term shareholders should repurchase the tendered shares from the open market. For the non tendered shares, investors can hold the shares because of the strong fundamentals of the company and strong tailwinds in the IT Sector,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

(The recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)