CHENNAI: The share buy-back announcement by TCS comes at a time when events within and outside have moved dramatically for the Tata Group. It comes on the eve of its CEO N. Chandrasekaran readying to take over the reins of the Tata group as chairman. Mr. Chandrasekaran will succeed Cyrus Mistry, who has been ousted from board positions at the group after an ugly battle for control. The buy-back also comes in the wake of a Donald Trump win in the U.S. presidential elections, which has sort of changed the narrative for the Indian IT (information technology) companies.
It must also be read in the context of TCS trying hard to digest the huge pile-up of cash. Coming against this backdrop, the buy-back announcement must be viewed from a strategic angle.
In the near-term, this is bound to improve the company’s share prices as the share float gets reduced. According to a leading chartered accountant, who declined to be quoted, equity funding isn’t less costly as is often made out to be. If for instance, an opportunity arose for the company to make an acquistion, it could consider funding the deal through debt as there is something definitive about debt funding in terms of its course. In the current context, where growth visibility is unclear and where there is a distinct possibility of interest rates heading south, he feels the share buy-back is a wise option both from the perspective of using the pile of money and also from the view of reconfiguring the business strategy. It remains to be seen how the mandarins at TCS would utilise this buy-back opportunity to help the promoters (the Tatas) to tighten their hold over the IT heavyweight which has become the group’s crown jewel.
The TCS buy-back decision could also raise the stridency of shareholders’ demand for a buy-back at Infosys. Questions have already been raised about the wisdom of Infosys running up a huge pile-up of cash. “Is it an IT company or an investment firm? Why does it require huge cash inventory?’’ asked an analyst. The initial murmurs are slowly turning louder. Will the TCS share buy-back announcement force Infosys to follow suit? One thing is, however, for sure. The TCS move is a paradigm shift in the the way promoters define the operating environment.
