TCS Potential Buyback Won’t Strain Balance Sheet: Analysis
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Date16 Feb 2017
(Bloomberg) – Tata Consultancy Services’s potential share buyback plan “won’t strain” its balance sheet and may be a step to please shareholders, analysts and fund managers told Bloomberg.
- NOTE: Tata Consultancy’s board meets on Feb. 20 to consider a proposal of a share buyback: filing
- TCS hasn’t specified details of the buyback
- Shares up as much as 2.7% to highest since September 2016; most-traded stock by value
Maybank Kim Eng (Neerav Dalal)
- TCS may buy back 1%-1.5% of its shares, spending ~$1.1b; it won’t strain the company as it sits on ~$6b cash and isn’t planning big acquisitions
- The announcement will increase pressure on rival Infosys to come up with a similar proposal
- TCS rated hold at Maybank Kim, PT 2,500 rupees
- Infosys rated buy, PT 1,300 rupees
TCG Advisory (Chakri Lokapriya)
- TCS profit margins will widen 1 ppt for every $1b of share buyback
- “Good use of cash” from a company that generates $2.5b of free cash flow every year
OPC Asset Solutions (Ajay Bagga)
- Buyback can be trend-setter for Indian market which has been beset by poor payout ratios and hoarding by cash-rich companies
- About 3% buyback will give good returns as TCS’s sales growth has fallen to 8%, dividend yields have dropped to ~2%
OmniScience Capital Advisors (Vikas Gupta)
- Buyback estimated at 25b-30b rupees; should spur other boards to look at their cash and share price discount to intrinsic value and consider announcing buybacks
- Midcaps will do “symbolic buybacks”