MOSL: TCS (Neutral)-Board to consider buyback on 15th June

TCS: Board to consider buyback on 15th June

(TCS IN, Mkt Cap USD103.3b, CMP INR1824, TP INR1750, 4% Downside, Neutral)

Event: TCS has announced that its board will meet on 15th June 2018 to consider a proposal for buyback of shares.

 The details on acceptance and impact of last buyback in 2017

• In February 2017, TCS had announced a buyback offer of INR160b at a price of INR2,850 per share (adjusted price of INR1,425), which was at a 16% premium to CMP.
• This constituted 2.85% of the company’s equity, leading to extinguishing of 56.14m shares. Also, this was within 25% of aggregate networth of INR838.7b.
• The promoters had also tendered their shares the last time, but that was 2.5% of their holding (and not the prescribed maximum of 2.85%). As a result, their holding had increased to 73.57% from 73.31%.
• As a consequence, tendering accepted from non-promoter holders was 3.8%. However, the acceptance ratio for small retail investors was 100% due to the SEBI’s mandate that companies reserve 15% of buyback for small shareholders with holdings worth less than INR200,000.
• This implies a lesser acceptance ratio for institutional holding – closer to the 2.85% of equity bought back. Logically, for institutional investors, it would, thus, be more attractive to sell the stock in case of a significantly positive reaction to the event.