TCS buyback: What analysts say on Rs 17,000 crore plan, stock outlook

The Rs 17,000 crore share buyback by Tata Consultancy Services Ltd (TCS) came in line with analyst estimates, who were expecting Rs 15,000-18,000 crore in dividend buybacks, given the IT major had already hinted at considering interim dividend for the quarter.

The buyback announced in 2022 stood at Rs 18,000 crore and was also announced at a higher stock price of Rs 4,500 share. Against that, the price for the fresh buyback plan has been set at Rs 4,150, which is still at 14.95 per cent premium to Wednesday's closing price of Rs 3,610.20. It could provide technical support to the TCS stock, analysts said.

TCS has a policy of returning 80-100 per cent of free cash flow to shareholders. In FY23, its total payout stood at 110 per cent of free cash flow.

"TCS’ buyback plan of Rs 17,000 crore with stock price of Rs 4,150 could provide certain technical support until the closure date (yet to be announced) and help TCS outperform Nifty IT by 2-4 per cent (our estimate is based on the performance in the previous such buyback periods). Due to cut in our revenue growth assumptions, we cut our FY24-26E EPS estimates by 3-5 per cent and lower our 12-month target price to Rs 3,708 (against prior Rs 3,869), implying 3 per cent potential upside," ICICI Securities said.

ICICI Securities said TCS shares may see time correction pending broader macro recovery, signs of which remain elusive at least over the next 6-9 months.

The share buyback size corresponds to 1.1 per cent of TCS' outstanding shares. TCS, Kotak Institutional Equities noted, instituted a regular buyback programs through tender route in the past six years.

"The buyback will provide support to the stock price in the near term. Both cash conversion and cash return to shareholders has been healthy in the past several years," it noted.

Nirmal Bang Institutional Equities said the reduction in share count due to the buyback would push up earnings per share (EPS) a tad. This brokerage, however, has maintained its sell rating on the stock with a target of Rs 2,930.

Axis Securities said based on its analysis, investors should participate in the buyback via the tender route.

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