The board of Tata Consultancy Services Ltd. approved the proposal to buy back shares worth up to Rs 16,000 crore to reward investors.
TCS will repurchase 7.6 crore shares, or 1.99 percent of the total paid-up equity, at Rs 2,100 apiece, India's largest information technology company said in an exchange filing. That's the second Rs 16,000-crore buyback in two years.
This will definitely increase the valuation of the company, especially since it has enough cash flow to grow every year, Neeraj Dewan, director at Quantum Securities, told BloombergQuint. “It's a very good strategy where it utilises the cash and gives it back to the investors and shareholders,” he said, especially if they don't have any opportunities for expansions.
Shares of TCS closed 2.94 percent higher at Rs 1,845 apiece, surging after the buyback announcement. The stock ended the day with the market capitalisation of more than Rs 7 lakh crore for the first time—it had first crossed the milestone in intra-day trading on May 25.
In TCS' last buyback, parent Tata Sons Ltd. had tendered around 64.2 percent of the total shares repurchased by the company. Large investors such as the Government of Singapore, Copthall Mauritius Investments Ltd. and EuroPacific Growth Fund also participated in it. Buybacks are more tax efficient than dividend payouts.
Indian IT companies have been under pressure to return excess cash on their books to shareholders. TCS' peers including Infosys Ltd. (Rs 13,000 crore) and HCL Technologies Ltd. (Rs 3,500 crore) had undertaken buybacks last year.
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