TCS Buyback: Indian IT major Tata Consultancy Services (TCS) along with its second-quarter earnings on October 11 is set to announce its fifth share buyback in six years, rewarding investors with the increasing cash in its reserves.
In its exchange filing last week, the Indian IT major had informed Dalal Street bourses that its board of directors is going to consider and approve buyback of shares in its board meeting scheduled on October 11, 2023.
Price Expectations
As per the market expectations, TCS buyback price can be around Rs 4300 to Rs 4500 per share and TCS buyback size could be around Rs 18,000 crore.
The stock reaction aligned with the views from foreign brokerage Morgan Stanley which believes the buyback was unlikely to trigger an outperformance of the stock.
Morgan Stanley also feels that the announcement of the buyback plans does not necessarily provide enough assurance to stakeholders as it was already anticipated by the market for the last two quarters.
Speaking on TCS buyback 2023, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “Q2 results 2023 season is going to start from today with TCS board discussing and approve the Q2FY24 results of the company. However, market is vigilant about the buyback of shares that the Indian IT major would be announcing today. As per my expectations, TCS buyback size would be around Rs 18,000 crore and TCS buyback price can be around Rs 4,300 per share to Rs 4,500 per share.”
JP Morgan said it expects a buyback size of Rs 18,000 crore, while Morgan Stanley pegs it between Rs 18,000 and 22,500 crore. IIFL sees it being between Rs 18,000 and 20,000 crore.
Previous Buyback
Before this, TCS has bought back its shares in 2017, 2018, 2020, and 2022. The IT behemoth, valued at over Rs 13 lakh crore, has bought back shares worth Rs 66,000 crore in the last six years.
In a share buyback, a company buys back shares from its shareholders, usually at a premium to prevailing prices, giving shareholders the option to fully or partly exit a stock at a profit. A buyback signals the management’s confidence in its business.
Earlier buybacks
TCS bought back its shares for the first time in 2017. The company announced a buyback worth Rs 16,000 crore in February 2017 at an 18 per cent premium to prevailing prices. This was followed by two buybacks of Rs 16,000 crore each in June 2018 and October 2020, at an 18 and 10 per cent premium, respectively. The last buyback was announced in January 2022. The company decided to buy shares worth Rs 18,000 crore at a premium of 17 per cent.
Tax Implications
A buyback is one of the most tax-efficient ways to reward shareholders, as profits on tendering shares during a buyback are tax-free unlike when it’s sold in open market. This is the reason even promoter groups participate extensively in buybacks. Dividends, on the other hand, are taxed in the hands of investors at their respective slab rate, which can be as high as 37 percent for high earners.
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