TCS To Consider Share Buyback On Oct. 7

Tata Consultancy Services Ltd. will on Wednesday consider its third share buyback proposal to reward stakeholders. That sent the stock soaring, making the software services provider the second listed Indian company to achieve a market cap of Rs 10 lakh crore.

Besides discussing the share buyback plan, the board of India's largest information technology company by market capitalisation will meet on Oct. 7 to consider results for the quarter ended September and second interim dividend, according to an exchange filing. No other details of the share buyback were disclosed.

Reacting to the development, TCS shares rose as much as 6% on Monday compared with a 3% gain in the Nifty IT Index. Its current market cap is at Rs 10.05 lakh crore. Reliance Industries Ltd. was the first listed Indian company to cross this milestone, with the current market value at Rs 14.6 lakh crore.

TCS is the first technology company to announce a buyback this fiscal. It had cash reserves worth Rs 73,993 crore as of March 2020.

A buyback can be done only once in 12 months. The Mumbai-based company had previously made buybacks worth around Rs 16,000 crore each in 2017 and 2018 as part of its long-term capital allocation policy of returning excess cash to shareholders. While in 2017 TCS bought back shares at Rs 2,850 apiece, in 2018 it paid Rs 2,100. Both buybacks were conducted at a premium compared to the company's market value.

“We believe TCS has the potential to do a buyback of Rs 20,000 crore, which is about 2% of its market capitalisation,” ICICI Direct said in a note as it sees this as a “positive”.

Jyoti Roy, equity strategist at Angel Broking, agreed. The TCS buyback is a positive development for the company. It is also a positive for the sector, given it could be a precursor for other IT companies to follow suit. Most IT companies have large surplus cash on books which can be used to reward shareholders either in the form of dividends or buybacks, Roy said.

Exceptional Item

TCS also said it would be providing Rs 1,218 crore as exceptional item in the upcoming quarterly results.

“On Aug. 20, the U.S. Court of Appeals (Chicago) returned a verdict on the appeal filed by TCS, reducing the damages award. The court held that the punitive damages award of $280 million is constitutionally excessive, vacated the punitive damages award and directed the trial court to reassess the punitive damages,” the company told the bourses. The court, it said, upheld the compensatory damages award of $140 million.