In a move that is bound to put pressure on its peers Infosys and Wipro, Tata Consultancy Services on Monday announced a plan to buy back up to 5.61 crore equity shares for an aggregate price not exceeding ₹16,000 crore.
This is biggest buyback in the history of India’s capital markets, surpassing Reliance Industries’ share repurchase of ₹10,400 crore in 2012.
“TCS’ board of directors has approved a proposal to buy back up to 5.61 crore equity shares of the company for an aggregate amount not exceeding ₹16,000 crore, being 2.85 per cent of the total paid-up equity share capital, at ₹2,850 per equity share,” TCS said in a filing to the Bombay Stock Exchange.
TCS’ investors clearly liked the buyback plan as the company’s stock soared over 4 per cent to close at ₹2,506.50 on Monday on the BSE.
Tender offer route The buyback will be on a proportionate basis under the tender offer route, using the stock exchange mechanism, the company said in the filing.
Technology companies, although flush with cash, have for long stayed away from returning capital to shareholders through a buyback. TCS, for example, is sitting on a cash pile of nearly ₹43,000 crore.
The buyback move by India’s largest software exporter could see investors in Infosys and Wipro clamouring for a similar payout. Both companies said last week that they would consider a share buyback.
Earlier, on January 31, the board of Mphasis had approved a buyback worth a little over ₹1,100 crore. Nasdaq-listed Cognizant recently announced a share buyback of $3.4 billion.
“If companies are not doing any acquisitions or investments, it’s better to return it (cash) to shareholders,” said Pareekh Jain, Director at HfS Research.
Analysts believe that the fears of some investors that such buybacks would impact the capability of TCS and other firms to invest in technology and make acquisitions is unfounded considering the vast amount of cash lying with these companies.
“The buyback of the shares is good given that cash yields are running low and the earning yield in the IT industry has improved on the back of the underperformance of the stock,” said Sarabjit Kour Nangra, VP, Research- IT, Angel Broking.
“Also, the buyback will take a part of the cash out of the books; this will enhance the overall return on equity,” she added.