Shares of Tata Consultancy Services TCS), India’s largest company by market capitalisation, jumped by almost 3 per cent on Wednesday after the company informed stock exchanges that its board will consider share buyback on June 15.
TCS shares finally settled the day at Rs 1,824.20 on BSE, 2.43 per cent higher than its previous close. Its market capitalisation soared by around Rs 17,000 crore to Rs 6.98 lakh crore from 6.81 lakh crore a day earlier.
AP Shukla, president, Joindre Capital Services, said, “The buyback will boost the investor sentiment as well as the promoters as it will lead to higher profit as number of shares will reduce and in future more profit can be distributed among the shareholders.”
The Mumbai-based company, however, did not disclose any further details about the buyback plan like the amount. During its Q4 FY2018 earnings call, TCS chief executive officer Rajesh Gopinathan had said the company’s intention is “to keep capital return close to 80-100 per cent of annual free cash flow.”
Last year, TCS had undertaken a Rs 16,000 crore mega buyback offer, entailing 5.61 crore shares at a price of Rs 2,850 per equity share. Large investors who participated in the buyback that time were Government of Singapore, Copthall Mauritius Investments and EuroPacific Growth Fund.
In buybacks, promoters are majority buyers and Tata Sons is expected to buy back bulk of the shares this time too, said a broker who didn’t want to be quoted.
For FY2018, TCS returned Rs 26,800 crore to shareholders in both dividends and buyback. For the full year, TCS' net cash from operations amounted to Rs 28,160 crore and free cash flow was Rs 26,360 crore.
Share buybacks typically improve earnings per share and return surplus cash to shareholders, while also supporting share price during period of sluggish market condition. Indian IT companies have been under pressure to return excess cash on their books to shareholders through generous dividends and buybacks.
Many IT firms, including Infosys (Rs 13,000 crore) and HCL Technologies (Rs 3,500 crore), had undertaken buyback schemes last year.