The board of India’s largest software services exporter, Tata Consultancy Services (TCS), approved a buy-back of ₹16,000 crore worth of shares in a bid to improve returns to its shareholders. Reacting to the news, shares of India’s most-valued firm rose 4% to ₹2,506.5 in a firm Mumbai market on Monday, valuing the company at ₹4.94 lakh crore.
The buy-back decision follows close on the heels of competitor Cognizant Technology Solutions Corp.’s decision to opt for a $3.4 billion plan that includes buy-backs and dividends.
The TCS board approved the buy-back of up to 5.61 crore equity shares of the company, reflecting 2.85% of the total paid-up equity share capital, for an aggregate amount not exceeding ₹16,000 crore, at ₹2,850 per equity share, said the Mumbai-based IT services firm in a filing with the exchanges, and added that the buy-back is subject to approval of members by means of a special resolution through a postal ballot.
‘Tender offer’
“The buy-back is proposed to be made from the shareholders of the company on a proportionate basis under the tender offer route using the stock exchange mechanism in accordance with the provisions contained in the SEBI Regulations, Companies Act, and rules made thereunder,” the company said in its filing.
The pre-buyback shareholding pattern as on February 17, 2017, showed that the Tata group owned 73.31% in the software major.
Interestingly, Monday’s board meeting, which started at 1.30 p.m. and continued till 2.50 p.m. was the last board meeting attended by N. Chandrasekaran as TCS CEO before he steps into a larger role on February 21 as chairman of Tata Sons.
Rajesh Gopinathan will replace Mr. Chandrasekaran as TCS CEO.
TCS’ decision comes within two weeks of rival Cognizant deciding to return $3.4 billion to shareholders by way of dividends and increased buy-backs.
Prominent shareholders of another competitor, Infosys, have also been demanding that their board consider a buy-back.
TCS had cash, cash equivalents including short-term investments of $5.69 billion on its books with free cash flow exceeding $1 billion in the third quarter alone.
“The buy-back of the shares is a good indication of the under-valuation of the stock in the markets,” said Sarabjit Kour Nangra, VP Research-IT, at Angel Broking. “It is good, also given that the cash yields are running low and earning yield in the IT industry has improved on the back of the under-performance of the stock. Also, the buy-back will take part of the cash out of the books; this will enhance the overall RoE, as the proportion of the low yielding asset (i.e. cash) will be reduced in the balance sheet and hence will reward shareholders,” she said.
Angel Broking maintained its ‘accumulate’ rating on TCS with a stock price target of ₹2,700 and said it believes that in the near term, the stock would exhibit significant strength around the price of ₹2,850.
TCS also announced that Mr. Gopinathan has been appointed as the Managing Director on the board.
COO N. Ganapathy Subramaniam has been appointed to the board as Executive Director. V. Ramakrishnan has been appointed as the Chief Financial Officer, taking over from Mr. Gopinathan.
