IT services giant Tata Consultancy Services (TCS) today said the members of the company have approved the buyback of shares worth up to ₹18,000 crore by passing a special resolution through postal ballot.
“The members of the company have approved the buyback by passing a special resolution through postal ballot,” the company said in a stock exchange filing.
The company has fixed Wednesday, February 23, 2022, as the record date for the purpose of determining the entitlement and the names of the equity shareholders who will be eligible to participate in the buyback.
On January 12, 2022, the board of directors of TCS had announced the buyback of up to 4,00,00,000 fully paid-up equity shares of the face value of Re 1 each at ₹4,500 per equity share for an aggregate amount of ₹18,000 crore.
The TCS share had closed at ₹3,693, down ₹77.35 or 2.05 per cent, on the NSE on Friday.
Tata Sons, TICL intend to take part in buyback
Tata Consultancy Services (TCS) had last month said its promoters Tata Sons and Tata Investment Corporation Ltd (TICL) also intend to participate in the offer. Tata Sons holds about 266.91 crore shares in the company and it intends to tender 2.88 crore shares for the buyback, while TICL, which holds 10,23,685 shares, offered to tender 11,055 shares.
Previous buyback offers
TCS’ previous buyback offer worth about ₹16,000 crore had opened on December 18, 2020, and closed on January 1, 2021, in which group holding firm Tata Sons had tendered shares worth ₹9,997.5 crore.
Over 5.33 crore equity shares were bought at that time (offer price was ₹3,000 apiece) and out of the total, Tata Sons’ 3,33,25,118 shares were accepted under the buyback offer.
Share buyback and what it means for investors:
Share buyback, or share repurchase, is when a company buys back its own shares from investors or stakeholders. It can be seen as an alternative, tax-efficient way to return money to shareholders.
Buybacks are attractive in tax terms even after considering the 10 per cent tax on long term capital gains (LTCG).
Usually, companies go for share buyback if it wishes to increase demand in the market. Share buybacks reduce the number of shares in circulation, which can increase the share value and the earnings per share (EPS).
When a company buys back shares, it results in a reduction of the number of shares outstanding and the capital base. To that extent, it improves the EPS and the ROE of the company. When the EPS goes up, assuming the P/E remains constant the price of the stock should also go up.
Typically, Indian IT companies like Infosys, TCS, Wipro and HCL Tech have a lot of cash and it has a cost. Therefore it is better the cash is returned to shareholders through a buyback.
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