- 23 Nov 2023
- ICICIdirect
HOW TO BENEFIT FROM TCS SHARE BUYBACK?
TCS - 4036 Change: -1.45 (-0.04 %)
TCS has announced a buyback for an amount equivalent to Rs 17,000 crore, which translates to 4.10 crore fully paid-up equity shares at Rs 4,150. TCS's share price is trading at Rs 3,500 per share (22 Nov morning), so let us see how retail investors can benefit from the TCS share buyback. Let us look at the buyback details before going into the details.
Buyback details
- Buyback Price: Rs 4,150
- Current Price: Rs 3,500
- Buyback Premium (%): 18%
- No of shares proposed for buyback (million): 40.9
- Buyback method: Tender offer route
- Record date for buyback: 25th November 2023
Previous Buyback
The current buyback is TCS's fifth buyback program in the last six years. The company first started its buyback program in 2017 when it announced the Rs 16,000 crore buyback, offering a premium of 18%. TCS continued announcing its buyback programs in the coming years.
TCS announced buybacks worth Rs 16,000 crore each in June 2018 and October 2020, offering premiums of 18% and 10%, respectively. The most recently concluded buyback took place in January 2022. TCS decided to repurchase shares valued at Rs 18,000 crore, with a premium of 17%.
Reasons why the company announced buyback?
A company can announce a buyback program for multiple reasons. Let us look at the third most important reason for the same:
Undervaluation: If the company believes that its stock is undervalued, it may choose to repurchase shares as a way to signal to the market that it views its own stock as a good investment. It can potentially boost investor confidence and attract new investors.
Return of Capital to Shareholders: Share buybacks are a way for companies to return excess cash to shareholders. By repurchasing shares, the company reduces the number of outstanding shares, increasing the ownership stake of existing shareholders.
Signal of Confidence: A share buyback can be seen as a vote of confidence by the company's management in the future prospects of the business. It indicates that the company believes it can generate more value for shareholders by investing in its own shares than by using the cash for other purposes.
How to benefit from the TCS 2023 buyback program?
If you plan to benefit from TCS's recent buyback announcement, here is how can you do it. The cutoff price for retail investors is Rs 2 lakh. It means that at Rs 3,500, the maximum number of shares you can buy back is 57. If we look at the acceptance ratio of the 2022 buyback, it was 24%. Assuming the same acceptance ratio this time around, with 57 shares in the Demat account on the record date, TCS may accept 13 shares at Rs 4,150. The net profit would be 650 * 13 = Rs 8,450. You will still have 44 shares in your Demat account, and the actual profit will depend on at what price you decide to sell them.
Summary
- Total Investment: Rs 2,00,000 (approx)
- Shares Brought at Rs 3,500: 57
- Acceptance ratio: 24%
- Shares accepted: 13
- Net Profit from Tender: Rs 8,450
- Shares remaining: 44
These numbers hold at a 24% acceptance ratio and may change if the acceptance ratio changes.
To know how the company has performed in recent quarters, check out our quarterly result coverage of TCS's Q2FY24 result.