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”