• Date 21st Nov 2023
• CMP: ₹ 3,530/share
• Large Cap with ₹ 13,00,000 cr. Mkt cap
• Buy Back price: ₹ 4,150/share; Record Date: 25th Nov

Introduction

TCS is a well-known Large Cap stock. TCS has announced a Buyback offer, here is a note on this. The offer is attractive.

About the Offer

• TCS approved a buyback offer at ₹ 4,150 /share for the repurchase of 4 cr. shares comprising 1.1% of the share capital for up to ₹ 17,000 cr. It is at a premium of 18% to its current price of ₹ 3,530. The record date is 25th Nov.
• Objective: The firm has offered to reward and return cash to shareholders. Post-buyback, the equity share capital will reduce, and so the ROE (Return on Equity) of TCS will rise.
• This is a shareholder-friendly activity. The firm has a healthy balance sheet already, and so uses the fresh cash generated from the business, to buy back shares, as it is a better use of these funds. IT services is a high cash-generating business that has a low requirement of capex or fresh investments.
• It’s the 4^th buyback in 5 years.
• SEBI has mandated TCS to reserve 15% of the buyback amount for Retail (small shareholders with holdings under  ₹ 200,000 of shares). Current shareholding pattern indicates TCS has 5% Public shareholders, so Retail may have this additional benefit in this buyback.
• TCS is well-valued and is trading at a PE multiple of 29 times today, above the historical average of 25 times. Its Q2FY24 result was good. The share has however underperformed the Nifty since early 2022.

Opinion

• If you do not hold TCS shares, you can Buy 48 shares of TCS now as retail, and Offer your shares through the buyback to TCS, and sell the rest soon after for short-term gains. Or sell the shares after 1 year for Long Term Capital gains.
• There is a good probability that TCS share could rise to the buyback price ₹ 4,150 in a few months.
• If you already hold TCS shares, then two options:
  • If you hold 48 or fewer shares (i.e. you are a Retail investor in TCS), offer your shares in the buyback, and purchase from the open market after record date 25^th Nov to take advantage of the discount.
  • If you hold more than 48 shares, take part in the buyback to the full extent, and purchase shares from the market now to take advantage of the 18% discount, and average down on your holding cost.  
• Investors can take advantage of tax benefits, as the income generated from this buyback of shares is tax-exempt.

Process of buyback

• Investors holding Shares in Demat Form can tender shares through their Stock Broker. If you have online access, there will be a BUYBACK page option for TCS, once the offer opens. TCS will inform shareholders about this soon.
• For more details, see FAQ from TCS on buyback attached.

Disclaimers and Disclosures

Punit Jain discloses that he is a long term investor (less than 1%) in TCS since 2012. Punit Jain was an employee of TCS from 1995 to 2001. He will also take part in this BUYBACK. Other than these, Punit Jain and JainMatrix Investments Bangalore (JMI) and its promoters/ employees have no direct or financial interest in TCS, and no known material conflict of interest as on date of publication of this report. This document has been prepared by JMI, and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JMI. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JMI has not independently verified the accuracy or completeness of the same. Neither JMI nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA Registered Investment Advisor. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. JMI has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.