DR.

VISHWANATH KARAD MIT WORLD PEACE UNIVERSITY

SCHOOL OF MANAGEMENT (PG)

For partial fulfilment of

Case Study no. 2

On
TCS Stock to Turn Ex-Date for Buyback Tomorrow: Experts Strongly
Recommend Tendering Shares

By
Rajnandini Kumar
20GEN036 Finance C

Under the guidance of

Prof. Vedashree Mali
Faculty

Legal Aspects of Corporate Finance

Trimester 6
Batch MBA – Fin A (2020-22)
A.Y. 2021-22
Introduction:

The case illustrates Tata Consultancy Services, one of India's largest technology companies,
and how it hires or engages in such corporate behaviour when it does not intend to use those
resources for expansion. A share repurchases, often known as a buyback, is a mechanism by
which a company reduces the number of outstanding shares on the open market. TCS has been
advertising buybacks for some time, and the current price and the repurchase price of Rs. 4500
(4500-3730=Rs. 770) this time are significantly different. The corporation's surplus is
employed in the repurchase.

Analysis:

This is a good thing because the corporation is sticking to its promise of returning funds to
investors. However, the 18,000-crore buyback represents 1.08 percent of the total paid-up
equity share capital. Although a repurchase may result in some earnings dilution, given TCS's
scale, this is insufficient to provide any meaningful upward trigger to the price. For the purpose
of distributing the premium amount to shareholders, a total of Rs. 30,000 crores in free cash
flow will be employed. The Rs. 18000 crores repurchase offer includes 4 crore equity shares.
This repurchases accounts for 1.08 percent of all outstanding shares. The repurchase is open to
retail investors with shares worth up to Rs. 2 lakhs, which means that based on the buyback
price, one can hold up to 44 shares.

Regardless of the buyback, share prices have been sliding; this could be due to the influence of
lower market sentiment spreading to IT sector firms. On the record day of the dividend, which
will be paid on February 7, 2022, the TCS share price declined almost 1%. On the same day,
the stock hit an intraday low of Rs 3862.50 on the BSE. Even if you don't have any money,
experts advise selling some existing shares and buying into the scrip for big returns in the short
term, considerably more than the FD rate, which may be up to 20% at the current price.

TCS repurchase is a wonderful chance for retail investors, as the stock is up 18% from Friday's
closing price. The acceptance ratio has historically stayed around 70%, and the stock price has
managed to cross the buyback price. If we look at the fundamentals, we can see that the outlook
is bright, despite the fact that valuations are a touch high, and the stock price has already
corrected from its 52-week high. Retail investors should participate in the TCS buyback, which
is expected to have a 50-70 percent acceptance rate and allow investors to hold the remaining
shares for the long term.