Mumbai: IT bellwether TCS on Monday approved a proposal to buy back 5.6 crore shares from the public for an aggregate amount not exceeding Rs 16,000 crore.
The company has proposed a base price of Rs 2,850 per share for the buy back, which is at a substantial 13 per cent premium to its Monday’s closing price of Rs 2,506.50. The buy-back size constitutes 2.85 per cent of the total paid-up equity share capital of the company.
“The buyback is proposed to be made from the shareholders of the company on a proportionate basis under the tender offer route using the stock exchange mechanism in accordance with the provisions contained in the Sebi (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made thereunder. The buy-back size does not include any expenses incurred or to be incurred for the buy-back like filing fees, advisory fees, public announcement publication expenses, printing and dispatch expenses, and other incidental and related expenses,” TCS said in a statement after its board approved the proposal.
The announcement triggered strong buying interest in the shares of India’s largest software service provider with the stock ending the day up over 4 per cent on the Bombay Stock Exchange. Buy-back allows a company to reduce its overall cost of capital and increase the earnings per share.
This is the second IT major to initiate a buy back to enhance shareholders value after the Nasdaq listed Cognizant Technology Solutions announced to return $3.4 billion to shareholders over the next two years, through share repurchases and dividends.
Earlier, the market was also abuzz with speculation that Infosys, India’s second largest software service provider would announce a similar plan after V. Balakrishnan, the company’s former CFO demanded a share buy-back to protect the interest of investors.
“The buy-back of the shares is a good indication of the under- valuation of the stock in the markets. It will take out a part of cash from the books, which will enhance the overall return on equity (ROE) as the proportion of the low yielding asset (i.e. cash) will be reduced in the balance sheet and hence will reward shareholders,” said Sarabjit Kour Nangra, vice–president, research, IT at Angel Broking.
