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The ₹18, 000 crore share buyback by TCS, one of India’s largest equity buyback issues by any IT company, witnessed 5.5 times more demand than the proposed offer with one more day left for its closure. Market experts said that Tata Sons, the promoters of TCS, could emerge as the largest beneficiary of the buyback if it has tendered its shares. Tata Sons has been on an investment mode with the acquisition of Air India and the impending launch of the digital platform.
As on Tuesday, 220 million shares were tendered through the buyback offer that was started on March 9. TCS will buy back 40 million shares, or 1.08 per cent of its equity. The buyback is being done at ₹4,500 per share — over 21 per cent premium to current market price. Shares of TCS last closed at ₹3,701.
Largest buyback
Kranthi Bathini, equity strategist at WealthMills Securities said, “This is one of the largest buybacks in terms of quantity and in terms of value. The buyback is placed aggressively and compared to the market price, the buyback offer is more lucrative and attractive to the investor. Given the uncertainty in the market, investors with medium term outlook, are trying to tender their shares for the buyback offer.”
When TCS did a buyback of 16,000 crore in 2020, Tata Sons had tendered shares worth around ₹10,000 crore. As many as 5.33 crore equity shares—including Tata Sons’ 33,325,118 — were bought back at ₹3,000 apiece then. TCS had undertaken similar repurchases in 2018 and 2017.
Tax-efficient
Share buyback has turned out to be the most tax-efficient way of returning money to shareholders by a listed company after the government started taxing dividends in the hands of the receivers. The effective tax on dividend now comes to 30 per cent for large shareholders as it is part of their income. Whereas the company pays 20 per cent tax on share buyback based on the difference between the market price and the issue price.
Reportedly, in 2019-20, Infosys had said it would return 85 per cent of its free cash flow to shareholders via buybacks and dividends over the next five years. In August 2019, Infosys bought back 11.05 crore shares as part of a ₹8,260 crore buyback offer. In September 2017, Infosys had spent ₹13,000 crore in buyback. Then in September 2021, it again undertook a ₹9,200-crore buyback of 5.58 crore shares, which were purchased at an average price of ₹1,648.53 apiece.
In January 2021, Wipro bought back 23.75 crore shares worth ₹9,500 crore. HCL Technologies had announced a buyback worth ₹4,000 crore in 2018. Arun Kejriwal, founder at Kejriwal Research said that the sharp price difference between TCS offer price and market price was due to the recent market crash. Otherwise, when the buyback was announced, the difference in price was not so huge. It is an arbitrage opportunity now when people can buy from the markets and tender in the buyback offer. Also, the acceptance ratio in the retail portion will be very high,” Kejriwal said.
As per an analysis by Edelweiss Alternative Research, the acceptance ratio for retail investors could be 14.3 per cent. So 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.
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