TCS Buyback

The Board of Directors of Tata Consultancy Services Ltd, at its meeting held on October 7, 2018  approved a proposal to buyback up to 5,33,33,333 Equity Shares (Five crore thirty three lakh thirty three thousand three hundred and thirty three only) of the Company for an aggregate amount not exceeding Rs. 16,000 crore for an aggregate amount not exceeding Rs 16,000 crore. TCS buyback uis 1.42% of the total paid-up equity share capita and is through the tender route.

Latest Updates:
  • RD for Dividend 15-10-20.

For a understanding of complete BuyBack Process & Terms, please see the link Buyback of Shares: A Primer for Retail Investors

TCS Buyback: Present(2020) and Previous(2018) Buyback

2020
2018
Buyback TypeTenderTender
Announcement 04-10-2015-06-18
MP befo BM25251840.05
Board meet07-10-2015-06-18
Buy Back Price30002100
% Premium on MP18.81%14.13%
BuyBack Size- Rs. Cr1600016000
BuyBack Size- Shares53,333,33376,190,476
Tot No.of shares3,752,384,7063,828,575,182
% Buyback1.42%1.99%
Equity Capital- cr375.24382.86
FV of Share in Rs.11
Record Date18-08-2018
Buy Back Issue date05:09-21-09-18
Shares reserved- Retail 8,000,00011,428,571
Retail Shr holders on RD
Shares on RD 25511425
Buyback Entitlement44.80%
Retail bidders (tendered)66,280
Shares Tendered 4,016,984
Tendering ratio15.75%
Retail response35.15%
Aceeptance %100%

TCS Buyback: A Framework to Estimate Likely Acceptance Ratio:

This framework is based on estimated shareholding of investors with upto 75 shares (approximate) of TCS as on 31/03/2020 and making assumptions on likely additions by means of purchases by new investors for arbitrage as well as by  existing shareholders and past trends in last two buybacks. TCS Buyback could end up with 50-70% final Acceptance Ratio if moderate number of investors opt for tendering. If there is a price run up in TCS owing to its performance, the Accetpace can be 100%.

Some Possible Return Scenarios

The absolute returns/Loss that may accrue to an Investors/Arbitrage trader are a function of Acceptance Ratio and Price Post Buyback. We have depicted the estimated Returns as a cross tabulation showing Absolute Returns as a function of various possible combinations of Acceptance Ratios and Price Post Buyback.

Shares Bought
65
Nos.
Buyback Price3000
Price (Live)2739.0
Investment (Rs.)178035
Absolute Returns %
MP Aft Buybk
Acceptance %250026252750
50%0.40%2.68%4.97%
60%2.23%4.05%5.88%
70%4.05%5.42%6.79%

TCS: Price Chart

Some Observations:

Assessment:
  • TCS reported revenue growth of 4896 qoq in constant currency (cc) terms.
  • This was ahead of consensus estimates.
  • USD revenue grew 7.2% qoq
  • Order bookings were US$8.6bn vs. US$ 6.9bn in FYIQ21 and US$6.4bn in FY2Q20.
  • Operating profit was up16.2% to Rs 10,515 crore.
  • Margin expanded to 26.2% from 23.6% last quarter.
  • TCS set aside Rs 1,218 crore as an exceptional item for damages paid in a U.S. litigation.
  • Net income was Rs. 84.3bn (+20.3% qoq/+4.6% yoy),
  • In signs that business is bouncing back from COVID19 disruptions, Tata Consultancy Services said it has increased hiring and will resume pay hike.
  • TCS in its commentray stated that demand recovery is taking place earlier than expected.
  • Downturn due to covid could be a risk. However IT sector so far seems to have done well even in days of COVID.
  • TCS declared a second interim dividend of 12 per Equity Share of 1 each of the Company. October 15, 2020 has been fixed as Record Date for the purpose. This is in a sense additional amount that investors will get before buyback.
  • TCS is trading at a PE pf 32x and is not cheap.
  • Company is virtually debt free.
  • Company has a good return on equity with 3 Years ROE 34.50%
  • Company has been maintaining a healthy dividend payout of 52.46%.
  • In 2018 buyback  there was 100%  acceptance from retail. This was aided by good traction in performace of the company whoch helped the stock to breeze past the Buyback price towards the end days of Buyback.
  • The big risk to this arbitrage opportunity is that market is at a high with run in Tech shares  as well. Any meltdown on this count could lead to low price of TCS post acceptance and in the event of lower acceptance, the residual shares value could fall.
  • On the Other side TCS is a strong counter having churned out inpressive results and belying such expectations of downturn after this event,  it may continue to show a firm trend even after buyback period. In this case the return of the  investor/arbitrage trader can improve further. 
  • TCS has indicated that Q3FY21 could be seasonal and this may fall before tendering of shares and could lead to some volatility.
  • TCS being in F&O may help to protect investors to some extent from sharp proce movements post uyback.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.