TCS buyback 2023: IT giant purchased Rs 66k cr worth of shares in last 4 buybacks

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IT major Tata Consultancy Services (TCS) has recently announced buying back 1.12 percent of the company's equity. In its fifth buyback offer to date, TCS has agreed to buy back up to 4,09,63,855 fully paid-up equity shares of the face value of Rs 1 each at Rs 4,150 per share. The buyback is at an 18.5 percent premium to Friday's close.

 Analysts’ view on TCS share buyback

“Short-term traders can buy TCS before the record date (Nov 25, 2023) and use the opportunity to generate decent returns based on the assumed entitlement ratio. Based on the buyback rate of Rs 4,150, short-term investors can generate ~18% ROI based on today’s Rs 3519. In addition, investors would also take advantage of tax benefits, as the income generated from this buyback of shares is tax-exempt.

TCS plans to use its idle cash to buy back the shares. Post the buyback, TCS’s cash reserves would come down by 1/3rd. Higher earnings per share: With the reduction in share capital due to buyback, we expect EPS accretion.

Source: Moneycontrol

Analysis

A share buyback can positively or negatively impact a company's economic value added (EVA) and market value added (MVA), depending on how it is executed.

In the case of TCS, it is likely that the share buyback will have a positive impact on EVA and MVA. This is because TCS is a well-managed company with a strong track record of profitability and growth. The company is also trading at a relatively attractive valuation, which suggests that the buyback could be done at a price below the company's cost of capital.

A share buyback can increase EVA by reducing the cost of capital. This is because the company is effectively repurchasing its own shares, which reduces the number of shares outstanding and decreases the amount of capital it needs to earn a return on.

A share buyback can increase MVA by signalling to investors that the company believes its shares are undervalued. This can lead to an increase in the company's share price, increasing its market capitalization.

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