TCS Share Buyback: A Short-Term Opportunity for Retail Investors?

The Tata Group is a name synonymous with esteem and trust. At the forefront of this renowned conglomerate is Tata Consultancy Services (TCS), the Tata's cash generating machine.

As the largest IT company in India by market capitalisation, TCS has a history of providing high-quality IT services to clients across a wide range of industries.

TCS has earned a reputation for generously rewarding its shareholders, having repurchased shares valued at an impressive Rs 660 billion (bn) in its last four buybacks.

In keeping with this tradition, TCS has unveiled its fifth share buyback in six years, along with the release of its second-quarter earnings on 11 October 2023.

Buybacks not only bolster a company's stock price but also sends a positive signal to investors, indicating the company has considerable resources available for repurchasing its own shares.

There are two ways in which companies can execute buybacks - the tender offer route and the open market offer.

In a tender offer, the company makes an offer to buy back shares at a particular price.

Here, the price is usually fixed at a premium and investors having shares of the company on record date can part with their shares by filling out respective forms over a given period.

In an open market offer, investors don't get very excited. In the open market offer, everything is routed through the stock exchange, and the price isn't fixed.

With that explainer out of the way, here are the key details about TCS's Rs 170 bn share buyback:

1. The board has yet to fix a record date for the same.
2. The IT company will buy back shares at Rs 4,150 per share. This is around 15% higher than its current market price of Rs 3,613.
3. The aggregate buyback amount is up to Rs 170 billion (bn).
4. The total number of shares to be bought back shall be up to 40,963,855 shares, representing 1.12% of the total equity.

TCS Buyback Details

Buyback Price (Rs per share)	4,150
Current Price (Rs per share)	3,613
Buyback Premium (%)	15%
No of shares proposed for buyback (million)	40.9
Buyback as proportion of total equity (%)	1.12
Buyback aggregate amount (Rs billion)	170
Buyback method	Tender offer route
Record date for buyback	NA

Data Source: Equitymaster

TCS's Rich Buyback History

TCS initiated its share buyback program in 2017 when it announced a buyback worth Rs 160 bn in February, offering an 18% premium to prevailing prices.

TCS continued its buyback trend with two more significant repurchases. In June 2018 and October 2020, TCS announced buybacks worth Rs 160 bn each, offering premiums of 18% and 10%, respectively.

The most recent buyback took place in January 2022. TCS decided to repurchase shares valued at Rs 180 bn, with a premium of 17%.

Buyback year	Share % of paid-up capital bought back	Buyback	Buyback size	Buyback price
		announcement date	(Rs in bn)	per share (Rs)
2017	2.9	18-May-17	160	2,850
2018	1.9	6-Sep-18	160	2,100
2020	1.4	18-Dec-20	160	3,000
2022	1.1	9-Mar-22	180	4,500

Data Source: Equitymaster

Interestingly, a buyback often indicates how a company views its fair value, which can influence stock prices. However, in TCS's case, the stock price's reaction to these buybacks has been slower than expected.

After the 2017 buyback announcement, it took 228 trading sessions, nearly a year, for its stock price to surpass the buyback price.

Following the 2018 buyback, it took 69 sessions, and for the 2020 buyback, it took 61 sessions. Remarkably, its stock has yet to reach the 2022 buyback price of Rs 4,500.

It did reach an all-time high of Rs 4,019.1 on 17 January 2023. However, it has since experienced a decline.

This illustrates that a buyback announcement does not guarantee the stock will outperform in the subsequent period.

TCS's Financial Performance

Over the past five years, the company's revenue has grown at a CAGR of 9.0%, while the net profit has increased by 5.6%. This was due to back-to-back big order wins.

In the financial year 2023, TCS reported remarkable results, with a YoY revenue growth of 17.6% to reach Rs 2,254.6 bn. The net profit for the same year saw a 10% YoY increase, totaling Rs 423.0 bn.

This growth was primarily due to increased realisation and heightened demand, which stemmed from improved geopolitical conditions.

Financial Snapshot 2023

Particulars	19-Mar	20-Mar	21-Mar	22-Mar	23-Mar
Revenue (Rs bn)	1,464.60	1,569.50	1,641.80	1,917.50	2,254.60
Revenue Growth (%)	-	7.2	4.6	16.8	17.6
Net Profit (Rs bn)	315.6	324.5	325.6	384.5	423
Net Profit Margin (%)	21.5	20.7	19.8	20.1	18.8

Data Source: Equitymaster

Apart from buyback, the company also announced its results yesterday.

The revenue came in at Rs 596.9 bn, up 7.9% YoY. In constant currency terms, the revenue growth was 2.8% YoY.

Furthermore, the net profit for the quarter increased by 8.7% to Rs 113.4 bn, up from Rs 104.3 bn in the corresponding quarter of the previous year.

This surge was attributed to a robust deal momentum, resulting in a substantial order book for Q2, the second-highest Total Contract Value (TCV) ever recorded in a single quarter, and a promising pipeline.

TCS also announced a dividend of Rs 9 per share. The record date is 9 October 2023, and the payment date is 7 November 2023.

Going forward, the company aims to increase partnerships to bolster its future performance.

Tata Consultancy Services (TCS) has entered into a multi-year partnership with British retail giant Asda to facilitate its digital transformation and IT model following its separation from Walmart.

The collaboration will use TCS cloud, AI, and security solutions to aid Asda's smooth and secure divestiture, enhance customer experience, and drive innovation for market share growth and price leadership.

Should You Participate in the TCS Buyback?

TCS missed estimates for both revenue and net profit. With a second straight quarter of soft growth, achieving double-digit growth for the full financial year looks difficult. For most top-tier IT services firms, growth is driven by the first half of the financial year.

However, its order book remains strong at US$ 11.2 bn. The September 2023 quarter was the third consecutive quarter when it came in around US$ 10 bn.

Growth for the quarter was affected due to drag in the BFSI (banking, financial services, and insurance) vertical and the US market.

Thus, the growth prospects of the IT giant remains uncertain. Participating in the buyback requires careful consideration.

When deciding whether to participate in TCS's buyback or not, investors should conduct diligent research to evaluate the terms and conditions of the buyback offer.

How TCS Shares have Performed Recently

TCS shares have gained more than 10% in 2023 so far. Over the past year, the company's shares are trading higher by 16%.

TCS touched its 52-week high of Rs 3,679.0 on 9 October 2023 while it touched a 52-week low of Rs 2,945.3 on 10 October 2022.

About TCS

Tata Consultancy Services (TCS) leading global IT services consulting and business solutions organisation offering transformational as well as outsourcing services to global enterprises.

It has a global presence deep domain expertise in multiple industry verticals and a complete portfolio of services consisting of consulting, service integration, application services, and many more .

The company uses all these and its industry leading suite of products and platforms to deliver high quality high impact solutions leveraging the latest technologies to customers across the world.

These solutions are delivered using its Secure Borderless Workspaces (SBWS) operating model which enables a highly distributed location-independent agile delivery.

It was the first company on the Bombay Stock Exchange (BSE) to reach US$ 100 bn marketcap in 2018.

To know more about TCS, check out TCS's financial factsheet and its latest quarterly results.

Also check out the 2021-22 annual report analysis of TCS.

You can also compare TCS with its peers.

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