TCS files draft letter of offer with Sebi for Rs 16,000-crore buyback

Tata Consultancy Services (TCS) on Friday filed its draft letter of offer with Securities and Exchange Board of India (Sebi) to buy back its shares for an amount of Rs 16,000 crore. TCS, the largest Indian IT firm, proposes to repurchase 5.61 crore shares at a price of `2,850 apiece and has set March 8, 2017, as the record date to decide eligible shareholders. The offer represents 2.85% of the total paid-up equity share capital of the company. The offer is 25% higher than the closing price of the stock of Rs 2,272.10 on Friday on Bombay Stock Exchange (BSE).

Last week, TCS reported a 2.5% sequential drop in net profit to Rs 6,608 crore for Q4FY17 as its profit before interest and taxes (PBIT) margin contracted by 30 bps (q-o-q) to 25.7%. Revenue, similarly, dropped 0.3% (q-o-q) to Rs 29,642 crore compared to Rs 29,735 crore in the quarter ended December 2016.

In a recent note to investors, Credit Suisse said TCS’ stock has underperformed significantly over the past year and valuations are well below the past few years’ average. However, the note said that growth acceleration is required to re-rate the stock and there is no visibility on that yet. The company has cash and cash equivalents of Rs 45,663 crore as on March 2017. The promoters hold 73.31% as on March 2017. This is the biggest buyback offer in the past 18 years. Earlier, Reliance Industries had come with a buyback offer of Rs 10,440 crore in 2012. Last month, Mphasis announced a buyback of shares worth Rs 1,103 crore.

US-based software services player Cognizant Technology Solutions, which has centres in India, also announced plans to buy back shares worth $3.4 billion in February. Last year, Wipro, one of the five largest IT firms, completed its buyback worth Rs 2,500 crore.

A total of 49 companies came with share repurchase offers in the financial year 2017, worth Rs 34, 648 crore, the highest in 19 years. The government’s dependence on the coffers of cash-rich PSUs to meet its divestment target and the new additional dividend tax regime are attributed to the reasons behind this trend. The buyback is the process by which a company repurchases its own shares from its stakeholders. The bought back shares are extinguished and the company’s equity base shrinks.