Tata Consultancy Services (TCS) had approved to buy back 4 crore shares (1.1% of its equity) through a tender offer at a price of ₹4,500 per share resulting in a total offer size of ₹18,000 crore. The record date has been fixed on February 23, 2022 for the purpose of determining the entitlement and the names of the equity shareholders who shall be eligible to participate in TCS share buyback.
As per SEBI regulations, 15% of the offer size (appox ₹2,700 crore) is reserved for small shareholders holding shares upto a value of ₹2 lakhs as on the record date.
“We expect the acceptance ratio to be in the range of 30-50% which could give a potential return of 5-9% (pre-tax) with a time frame of 1-2 months (assuming one is able to sell the remaining un-tendered shares at current price). Retail investors looking for short term opportunity can buy the shares of TCS from the open market and tender them in the buy-back offer,” said Motilal Oswal.
Based on the share buyback price of ₹4,500, one can buy upto 44 shares ( ₹2,00,000/ ₹4,500) to be eligible for retail category, the brokerage highlighted.
Though, Motilal Oswal sees – additional retail shareholders buying the stock before the record date leading to lower acceptance ratio, and the current market price (assumed for calculation of profits) drops before one is able to exit post buyback as key risks to the opportunity.
TCS promoters – Tata Sons and Tata Investment Corporation Ltd – intend to participate in the buyback offer by tendering about 2.88 crore shares. This is the IT giant’s fourth and biggest buyback in the past 5 years. The previous buyback of the TCS, worth about ₹16,000 crore, had opened on December 18, 2020, and closed on January 1, 2021.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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