Mumbai: Shares of India’s biggest IT firm, Tata Consultancy Services Ltd (TCS), surged nearly 3% on Friday after the company said its board had approved a share buyback worth 16,000 crore at a premium of more than 17% from the previous close. With its shares closing at a record high of 1,841.45 each on BSE, up 2.75% from its previous close, the market cap of India’s largest software services firm hit 7.05 trillion on a day the benchmark Sensex index rose 0.06% to close at 35,622.14 points.

At its board meeting, TCS said it will buy back up to 76.19 million shares, aggregating up to 1.99% of the paid-up equity capital, via a tender at 2,100 per equity share.

The buyback price is a steep 17.17% premium to Thursday’s closing price of 1,792.25. TCS expects the buyback to be completed in the second quarter of this fiscal year.

“The buyback announcement is in line with TCS’ stated intent to return 80-100% of free cash generated to shareholders through the dividend/buyback route. Nevertheless, we maintain our cautious stance on TCS due to expensive valuations with the stock trading at 21X FY2020E earnings," said Kotak Institutional equities in 14 June report.

TCS had announced a 16,000 crore share buyback last year as well, which was subscribed over 221.39%. This year, in April, the company rewarded shareholders with a one-for-one bonus.

Analysts say share buybacks typically improve earnings per share and return surplus cash to shareholders while also supporting the stock price during sluggish market conditions.

India’s three IT majors—TCS, Infosys Ltd and Wipro Ltd— together have more than $12 billion in cash. In addition, they generate about $7.5 billion cash every year, suggesting that they have enough cash to reward their shareholders.

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