After TCS' Rs 75 dividend, a share buyback looks unlikely in near term, say analysts

Tata Consultancy Services (TCS) announced a solid special dividend of Rs 67 per share on Monday, along with its third interim dividend of Rs 8 per share. But after these dividends totaling Rs 75 per share, analysts do not see possibility of a share buyback by the IT major in the next couple of quarters.

Anyway, the company cannot do a buyback in the next few months, as it would be requiring maintain a 12-month period between the two buyback announcements, said Choice Broking in its review report.

The last time, Tata Consultancy Services came up with share buyback was March 2022. The buyback ran between March 9 and March 23, 2022, amounting to Rs 18,000 crore.

"With such a large dividend paid out we suspect that we may not see a buy-back announcement in the immediate term," Nirmal Bang said in another note. This is even as TCS reported strong cash conversion, with operating cash flow (OCF) at 102.8 per cent of net income, Nirmal Bang Institutional Equities said in its Q3 review note.

TCS had on Monday said: “The board of directors have declared a third interim dividend of Rs 8 and a special dividend of Rs 67 per equity share of Rs 1 each of the company."

Analysts said since TCS has announced a major dividend, the IT firm may now need to conserve cash amid the uncertain economic outlook and looming challenges in terms of operations.

“TCS needs to preserve cash and a buyback is unlikely in the near term, as there is an overhang on the business uncertainty. It will continue to be cautious over cash outflows,” said Kranthi Bathini, Equity Strategist at WealthMills Securities.

“For US markets, Q1 (January-March period) is the most crucial considering the annual budgets for BFSI clients are renewed and new projects are inked. This becomes the Q4 for Indian markets, and one should wait for another quarter for more clarity,” Bathini said.

He added that the company may announce another round of dividend along with the earnings of the next quarter but ruled out possibilities of buyback, even after the expiry of the twelve-month barrier.

Motilal Oswal Securities in results note said TCS’ management commentary on demand environment indicated caution in the near term despite consistent growth in the deal pipeline, as North America and continental Europe saw a near-term deal conversion slowdown on account of macroeconomic challenges.

But TCS reiterated its aspiration of double-digit growth in the medium to long term," it said,

TCS has fixed January 17as the record date to determine the eligibility of the shareholders for the purpose, while the total dividend will be paid to shareholders on February 3, 2023. The stock will trade ex-dividend on February 2.

According to the data from Trendlyne, the IT bluechip has announced 77 dividends since October 2004. In preceding two quarters, the company had paid two interim dividends of Rs 8 per share in July and October, 2022 each.

Reliance Securities has maintained its sell call on TCS with a target price of Rs 3,110, whereas Phillip Capital has a buy rating on the stock with a target price of Rs 4,000.