Tata Sons likely to mop up Rs 12,284 crore from TCS share buyback

Rs 17K cr offer at Rs 4,150 per share to open on Dec 1

Parent Tata Sons plans to tender 29.6 million shares in the Rs 17,000-crore buyback of flagship Tata Consultancy Services (TCS), India’s largest software exporter disclosed in a regulatory filing on Tuesday.

If all the shares are accepted, Tata Sons will be able to mop up Rs 12,284 crore — nearly three-fourths of the buyback amount. At the end of the September quarter, the promoter holding in TCS stood at 72.3 per cent.

The buyback, which is being done through the tender route to enable promoter participation, will remain open between December 1 and December 7, TCS said. TCS plans to repurchase a total of 40.9 million shares, or 1.12 per cent of its outstanding equity base, at Rs 4,150 apiece — a premium of 20 per cent to TCS’ last close of Rs 3,471.

The IT giant plans to fund the buyback through existing surplus funds and internal accruals, said the filing.

At the end of September 2023, TCS had cash and investments worth Rs 59,677 crore, slightly higher than Rs 59,290 crore a year ago, according to the company’s financial statement.

Tata Sons has been in news in the recent past as it has been raising funds for some of its new businesses, including Tata Digital and Air India, its foray into manufacturing of iPhones, and the giga factory for battery cells. Market experts said the cash raised by tendering shares in the buyback will be used by the conglomerate to fund some of these businesses.

Between 2017 and 2022, TCS completed four buybacks worth Rs 66,000 crore. Tata Sons has tendered its shares in all four buybacks, totalling Rs 41, 895 crore (or roughly $5 billion based on Tuesday’s INR-USD rate of 83.34).

Group firm Tata Investment Corporation tendered shares worth Rs 18.35 crore in the four buybacks. In March 2022, TCS concluded its largest ever buyback worth Rs 22,000 crore at Rs 4,500 per share. Tata Sons had tendered shares worth Rs 11,164 crore in this buyback.

From a large shareholder point, buybacks are considered more rewarding than dividend payouts. As a result, large promoter-backed IT firms such as TCS and Wipro have resorted to buybacks over dividends during the past few years.

“Buybacks are a more efficient way to reward shareholders as there is no additional income tax payable on the sale proceeds in the hands of the shareholders. On the other hand, a dividend attracts tax liability at the time of filing the income tax return also,” Rubal Bansal Maini, Partner, Luthra and Luthra Law Offices India told Business Standard recently.

Shares of IT companies have been on a roller-coaster ride over the past two months. After the disappointing Q2 results, shares of most IT companies had tanked amid a cloud over their growth outlook. 

The Indian IT sector has been hit by the slowdown in its major market the US. This has impacted performance of all the top major IT services firms including TCS. 

However, TCS managed to sign one of its highest contracts. Indicating growth will be pushed to FY25. 

Of late, however most tech firms have seen some recovery in their stock prices this month amid improvement in risk appetite following a retreat in US bond yields. The Nifty IT index has gained 4.8 per cent so far this month, marginally outperforming the Nifty50, which has gained about 3.8 per cent.