Tata Consultancy Services (TCS) is planning to announce its fifth share buyback in six years, in tandem with its Q2 earnings report on October 11, delivering returns to investors from its expanding cash reserves.
TCS had previously conducted a share buyback in 2022 when it repurchased shares at Rs 4,500 each in a buyback valued at Rs 18,000 crore. TCS has engaged in share buybacks in the years 2017, 2018, 2020, and 2022. The tech giant, with a market capitalization exceeding Rs 13 lakh crore, has repurchased shares totaling Rs 66,000 crore within the past six years.
Throughout this year, TCS has taken a leading position among its competitors. Besides expanding its workforce at a time when the entire IT sector was facing future uncertainty, it secured significant deals, such as the partnership with the UK's National Employment Savings Trust.
In 2017, TCS initiated its share buyback program, offering a premium of 18 per cent over prevailing market prices and repurchasing shares worth Rs 16,000 crore. Following this, the company conducted two more buybacks in June 2018 and October 2020, each valued at Rs 16,000 crore, with premiums of 18 and 10 per cent, respectively. The most recent buyback, announced in January 2022, involved the repurchase of shares worth Rs 18,000 crore at a 17 per cent premium.
Morgan Stanley's estimation for the buyback size falls within the range of Rs 18,000 crore to Rs 22,500 crore. The brokerage conducted an analysis of 15 buybacks executed by prominent Indian IT firms since 2017. It revealed that in nearly 10-11 of these cases, the stock's performance before the buyback announcement was stronger than its performance afterward. The analysis further added that the buyback announcement alone may not guarantee an enhanced stock performance.
JP Morgan's projection for the buyback stands at Rs 18,000 crore, in contrast to Morgan Stanley's wider estimate of Rs 18,000 to 22,500 crore. Meanwhile, IIFL's assessment places the buyback figure between Rs 18,000 and 20,000 crore.
A share buyback is emblematic of a company's assessment of its fair value, as denoted by the buyback price. Usually, stock prices tend to gravitate towards this valuation over time. But in TCS's case, the stock price hasn't aligned with the buyback value as quickly as expected.
In the early trade session on October 11, TCS’s shares experienced sharp volatility signaling mixed investor reactions. The stock was trading at Rs 3,637 on the National Stock Exchange gaining 8 points from the previous close.