The talk of the town is TCS Buyback! Tata Consultancy Services has announced a buyback at ₹4,150 per share. In the last 6 years, this is their 5th Buyback. TCS has bought back shares in the years 2017, 2018, 2020, and 2022 all at a premium ranging from 10% -18%.
Here is what to expect from this Buyback. As a retail investor, what should be your call? Let us do a quick analysis and reserve our position.
Table of Contents
1.)TCS at a Glance
2.)TCS Buyback 2023 – Stock performance (All values as of 16 Oct 2023)
3.)An Overview of TCS Buyback 2023
4.)TCS Buyback 2023 “Tender Offer” – Explained!
5.)Small Shareholder Category – Tender Eligibility
6.)Acceptance Ratio in TCS Buyback 2023
7.)Promoters’ Holding in TCS Buyback 2023
8.)TCS Buyback 2023 – What can Retail Investors expect?
9.)Advantages for TCS in Buyback 2023
10.)TCS Buyback 2023 – Taxes
11.)TCS Buyback 2023 – Final Call
1. TCS at a Glance
TCS is an IT services company incorporated in the year 1995. It is the second-largest Indian company by market capitalization and is among the most valuable IT service brands worldwide. The company was listed in the year 2004. It has a market cap of Rs 12.89 Lakh crore.
The current Return on Equity (ROE)and Return on Assets (ROA) are 46.91 and 29.57 respectively. You can Click Here for official details about the TCS Buyback and registration.
2. TCS Buyback 2023 – Stock performance (All values as of 16 Oct 2023)
Highlights of the Quarter Ended September 30, 2023 (Q 2 – FY 2034-24)
- Revenue at ₹ 59,692 crore, +7.9% YoY
- Constant Currency revenue growth: +2.8% YoY
- Operating Margin at 24.3%; an expansion of 0.3% YoY
- Net Income at ₹ 11,342 crore, +8.7% YoY, Net Margin at 19%
- Net Cash from Operations at ₹11,823 crores i.e., 104.2% of Net Income
- Dividend per share: ₹ 9.00. Record date 19/10/2023 and Payment date 07/11/2023.
Annual Performance (%)
|year||Tata Consultancy Services||S&P BSE Sensex||S&P BSE IT|
3. An Overview of TCS Buyback 2023
|Buyback Record Date||20 Oct 2023|
|Buyback Open Date|
|Buyback Closing Date|
|Issue Size (Shares)||4,09,63,855 (4.10 Crores)|
|Issue Size (Amount)||₹17,000.00 Crores|
|Buyback Price||₹4150 per Share|
|Issue Type||Tender Offer|
|Listing At||BSE, NSE|
On Oct 11, 2023, the company’s Board approved the Buyback of shares worth ₹17,000 crore. The company will be buying back 4.10 crore shares, amounting to 1.12% of the total equity.
The maximum price of the share Buyback has been set at ₹4,150 which is at a premium of 14.95% to the closing price on 11th Oct. The Buyback will be done through the tender-offer route and includes both the BSE and NSE.
4. TCS Buyback 2023 “Tender Offer” – Explained!
TCS announced that the Buyback is through a Tender Offer. But, what does Tender Offer actually mean?
The term “Tender Offer” refers to a company’s offer to repurchase its own shares or other specified securities through a letter of offer from the holders of those shares or other specified securities, as defined by Regulation 2(1)(q) of the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018.
To tender equity shares in a “Tender Offer” process, a shareholder will need to speak with his selling member (stockbroker) who is registered with the exchanges.
To offer the shares for the Buyback, the shareholder must contact the selling member (broker) listed with the specified stock exchange and use the designated stock exchange’s acquisition window.
The secondary market stock exchange method is analogous to this technique.
5. Small Shareholder Category – Tender Eligibility
As per SEBI rules, 15% of the total tender offer is reserved for the small shareholder category. Here, a small shareholder means an investor who has an investment of not more than Rs 2 lakh in the company as of the record date.
Let us assume, that the closing price on the record date is ₹ 3650, then a retail investor who holds nearly 51 TCS Shares (2 lakhs/3900 = 51) is considered a small shareholder.
6. Acceptance Ratio in TCS Buyback 2023
It is the proportion of shares accepted in relation to those tendered. For example, if you have tendered all your 50 shares and the acceptance ratio is 100%, all your 50 shares will be accepted. If the acceptance ratio is 50%, only 25 shares will be accepted and the balance will be released post-buyback settlement. A higher acceptance ratio implies a better return for investors.
In previous TCS Buybacks in 2017, 2018, and 2020, the acceptance ratio for retail investors was 100%, but it decreased to around 20% in 2022. The acceptance ratio for the 2023 BBuyback is expected to be low (explained in the next part)
7. Promoters’ Holding in TCS Buyback 2023
The current promoter’s holding is 72.3%. The total public holding in this company is 27.70%, and the small shareholder category holding stands at 16.44 crore. As mentioned above, 15% of the Buyback offer of 4.10 crore shares would be reserved for the company’s small shareholders, which amounts to 0.6 crore shares.
Stake Holders as of Sep 2023
As per the Minimum Public Share Holdings (MPS) rule, 25% of the outstanding equity shares of the company must be compulsorily held by the public. Which means TCS will reach the limit with a 300 -400 basis points. Hence, the acceptance ratio for the retail category would be low and somewhere around 5% (0.6/16.44*100 = 3.64%)
8. TCS Buyback 2023 – What can Retail Investors expect?
Please keep in mind that you can participate in Buyback offers only if you have held shares of the company since before the announced record date (20 Oct 2023).
- A buyback is a good opportunity to exit.
- It is offered at a premium price than the current market price.
- The retail investor need not pay tax for the capital gains arising out of Buyback is just icing on the cake. The company will pay a flat 20% tax along with education cess.
The buyback of shares with surplus cash denotes that the money is not utilised for the development of the company but rather to improve the promoter’s stake.
The acceptance ratio might be lower than the previous Buybacks.
9. Advantages for TCS in Buyback 2023
- The company’s promoter stake will increase marginally. The current promoters’ ownership is 72.3%.
- Improves the earnings per share.
- With fewer shares being traded in the market, it drives the demand up and eventually increases the stock price in the Stock Market.
10. TCS Buyback 2023 – Taxes
In accordance with the Income Tax Act of 1961, the Company will pay the Buyback tax. Any proceeds would be exempt from taxation for the shareholders under the Income Tax Act of 1961 because the Company would be paying the repurchase tax.
Non-resident shareholders, however, can be subject to additional taxes in their own nation. The Letter of Offer would include a thorough statement on taxes. Shareholders are urged to speak with their tax professionals by TCS.
11. TCS Buyback 2023 – Final Call
Buyback denotes that the company’s share price is undervalued. Short-term investors could potentially benefit by tendering their shares in this Buyback. You can make quick bucks.
Warning! Do not buy shares before the Record date just to tender for Buybacks. You may think that this is a no-brainer but as discussed earlier the acceptance ratio might be low and the price might lag post the Buyback.
Long-term investors should hold their shares as the company’s growth outlook is Robust. The reason behind this is there will be a strong demand for IT services in the future. There is a high chance for capital appreciation in the long run.
If you are a short-term investor, ride the wave or else play the long game with your investment. Which side of the coin are you in?
It is dangerous to decide matters on finance just by surfing through social media sites like Quora, Facebook, Twitter, etc. Consulting A professional financial planner is the proper method for achieving your financial goals.