IT bellwether Tata Consultancy Services (TCS) has surprised Dalal Street with its share buyback plan as it was widely speculated that Tata Sons may sell stake in the software arm to acquire Shapoorji Pallonji Group's 18.37 per cent holding in the promoter entity. Boosted by the buyback plan, TCS share price touched all-time high price of Rs 2,736. The IT giant has become the second company to cross the market capitalisation of Rs 10 lakh crore followed by Reliance Industries (RIL).
The board of TCS will consider a share buyback proposal on October 7, the company said in a regulatory filing on Sunday. The company, however, did not disclose further details of the buyback plan.
"The board of directors will consider a proposal for buyback of equity shares of the company, at its meeting to be held on October 7, 2020," TCS, India's second most valued firm, said in a filing to the BSE.
Market analysts see the share buyback as a positive move as it will reassure shareholders' confidence in the company, especially in the present uncertain environment in light of the coronavirus pandemic. Other IT companies such as Infosys and Wipro are likely to follow the trend as they have huge cash lying on their balance sheets.
At the end of March quarter of FY20, TCS had cash reserves of Rs 73,993 crore.
According to analysts at Kotak Institutional Equities, TCS' share buyback size is expected to be in the range of Rs 8,900-22,000 crore, amounting to 0.8-2.2 per cent of the prevailing market capitalisation of the stock.
"Our estimate of maximum outlay of buyback through the board-approved route is Rs 8,900 crore ( is 0.9 per cent of the current market cap) or Rs 22,000 crore (2.2 per cent of current market cap) through the shareholders'-approval route," said Kotak Institutional Equities.
Analysts at HDFC Securities see this move within TCS' stated policy. "We certainly see that as positive and reassuring because if we look at the context of what really happened in the macro environment in the past across many industries," said Apurva Prasad of HDFC Securities.
The share buyback plans of TCS will help the parent Tata Sons to create a war-chest to acquire its shares owned by the family of Shapoorji Pallonji Mistry. TCS's contribution to Tata Sons revenue increased to more than 90 per cent from 77 per cent in FY19. Tata Sons' revenue from operations, which mainly comprise dividend income and brand royalty fees, had rocketed 158 per cent to Rs 24,770 crore in the last financial year. The profit soared 130 per cent to Rs 2,680 crore, thanks to the generous IT giant.
By Chitranjan Kumar
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