TCS buyback proposal came as good news for investors; shares to get pricey going forward

Tata Consultancy Services (TCS) share price has become a money-making magnet at the stock exchanges. Guess what! This momentum is going to continue now that TCS has announced one more massive buyback of Rs 16,000 crore in over one year's time. A similar buyback was made last year in the month of May 2017. It needs to be noted that, TCS’ buyback once again stands as the highest in history. The news of TCS buyback was very positively taken by investors and the share price touched a 52-week high of Rs 1,849, which led to overall rise of 3.16% on BSE. Not only that, TCS market valuation rose to Rs 7,05,012.8 crore. 

Since last month, TCS has been making history, firstly by hitting the $100 billion market cap, trading at premium against peers and lastly now for another Rs 16,000 crore buyback. 

"Board has approved a proposal to buyback up to 7,61,90,476 equity shares of the Company for an aggregate amount not exceeding Rs 16,000 crore being 1.99 per cent of the total paid up equity share capital, at Rs 2,100 per equity share," said TCS in a filing to BSE. 

It first broke down the news of buyback on June 12 which has now led to 6.09% rise in share price of TCS last week on BSE. 

TCS’ net worth as on March 2018 is Rs 872.4 billion. While Cash and equivalents amounted to Rs 477 billion.

Promoters hold 71.92% stake in the company, while foreign investors own 17.13% holdings. 

Motilal Oswal explains that logically, for institutional investors, it would, thus, be more attractive to sell the stock in case of a significantly positive reaction to the event.

Ashish Chopra and Sagar Lele analysts at Motilal Oswal said, “With multiple mega deals in the bag, TCS is set to continue on its path of gradual acceleration in growth witnessed over the past two quarters, and potential hitting double-digits in constant currency toward the latter half of the year.” 

The duo added, “ Currency movements will also play a key role in helping pull margins back to the aspired range of 26-28%. At 22.3x FY19E and 21.1x FY20E earnings, we remain Neutral on valuations.”

In Morgan Stanley’s view, TCS stock has done well YTD and has outperformed its global peers in the same period. With global growth likely to remain strong, the US economy doing well, digital adoption becoming broader and deeper, and the rupee depreciating, we see several tailwinds for the stock. 

Parag Gupta and Gaurav Rateria, Equity analysts at Morgan added, “We expect TCS to report one of the strongest growth rates among our Indian/global large-cap stocks with revenue and earnings CAGRs of 10% and 14%, respectively, over the next two years. As a result, we believe the stock will trade at a healthy premium to its peers and raise our target multiple from 22x to 23x.”

During its Q4 FY18 earnings call, TCS CEO Rajesh Gopinathan had said the company's intention is "to keep capital return close to 80-100 per cent of annual free cash flow".