TCS share price surges 4.5% on opening; board to consider equity share buyback proposal later this week

Information Technology major Tata Consultancy Services (TCS) announced that it will consider an equity share buyback proposal later this week on October 7 when the Board of the company meets ahead of the quarterly results. “This is to inform you that the Board of Directors will consider a proposal for buyback of equity shares of the Company, at its meeting to be held on October 7, 2020,” TCS said in regulatory filing on Monday morning. Shares of the IT giant have surged over 54% from its March lows. TCS shares opened 4.54% higher at Rs 2,637 per share.

The IT firm has initiated two equity share buybacks in the recent past, both of which were for an aggregate amount of Rs 16,000 crore, coming in 2017 and 2018. In 2018 the shares were bought back by TCS at a price of Rs 2,100 per share — a 14% premium to the stock price back then. TCS bought 7.61 crore equity shares back then. In 2017 the Rs 16,000 crore share buyback, saw TCS buy shares at a price of Rs 2,850 per share, again at a premium to the market value back then. “We believe TCS has the potential to do a buyback of Rs 20,000 crore, which is ~2% of its market capitalization,” said ICICI Direct in a note seeing it as a positive.

Decision on the buyback and the size of it will be known later this week when the company meets to discuss the financial performance for the previous quarter. Analysts expect IT companies to post a strong set of numbers in the quarter on the back of healthy deal wins and uninterrupted business. “Deal momentum has been strong across the sector in 2Q, and we expect deal TCV to be robust for TCS (Phoenix, Morrisons, Coop, and ABB), Infosys (Vanguard and ConEd), HCLT (Ericsson), Wipro (Marelli), Mphasis (RBS), and Mindtree (Husqvarna),” said HDFC Securities in a recent note. Along with Tech Mahindra, TCS is expected to post one of the strongest margin expansion in the second quarter when compared to the previous one, according to HDFC Securities. 

Along with the equity share buyback proposal announcement, the IT major also said it would be providing Rs 1,218 crore as an exceptional item in the upcoming results. “On August 20, 2020, the US Court of Appeals, 7th Circuit, Chicago, returned a verdict on the appeal filed by TCS, reducing the damages award. The Court held that the punitive damages award of USD 280 million is constitutionally excessive, vacated the punitive damages award and directed the Trial Court to reassess the punitive damages,” TCS informed the bourses. The Court upheld the compensatory damages award of $140 million, the IT giant said.