Brokerage house Motilal Oswal said that given that the eligibility for the retail portion of the TCS buyback is 44 shares, which is ~44% of the 100 shares, the acceptance ratio could be anywhere between 30-50%.
Ahead of Tata Consultancy Services’ share buyback offer, TCS shares fell 1.97% on Monday (21 February 2022) in tandem with benchmark indices. Retail investors who wished to participate in the buyback offer of TCS had until today as the last opportunity to buy the counter, to be eligible to tender their shares. TCS stock traded ex-buyback today and the record date for the same is 23 February 2022, which means investors need to have the TCS scrip on this date in order to apply for the buyback. Going by the past buybacks done by the IT major, analysts expect an acceptance ratio of 30-70 per cent.
TCS share buyback details:
– Buyback Size: Rs 18,000 crore
– Buyback Price: Rs 4500/share
– CMP (as of 21 Feb 2022): Rs 3720/share
– Buyback Premium: Rs 780/share (17.3%)
– Record Date: 23rd February 2022
– Total number of shares to be bought back: 4 crore shares (1.1% of paid-up equity)
– Shares reserved for small shareholders: ~0.6 crore shares (15% of buyback offer)
– Based on Buy Back price of Rs 4500, one can tender up to 44 shares (Rs 2,00,000/4500) to be eligible for Retail category
TCS share buyback: Should you participate?
Motilal Oswal Financial Services: Participate
Brokerage house Motilal Oswal said that given that the eligibility for the retail portion of the TCS buyback is 44 shares, which is ~44% of the 100 shares (lowest data point of shareholding as per last annual report), the acceptance ratio could be anywhere between 30-50%. However this might get lower, as retail participation might have increased over the last ten months and is likely to increase further post the Buyback announcement.
“We expect the acceptance ratio to be in the range of 30-50% which could give a potential return of 5-9% (pre-tax) with a time frame of 1-2 months (assuming one is able to sell the remaining un-tendered shares at current price ~Rs 3,720). Retail investors looking for short term opportunity can buy the shares of TCS (upto the value of Rs 2 lakhs – as on the record date) from the open market and tender them in the buy-back offer,” said Motilal Oswal in its note.
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HDFC Securities: Participate
According to the brokerage, there is a wide gap currently between the buyback price and the market price. 4.62 lakh new shareholders have been added in the category of ‘face value upto Rs 2 lakh’ between 31- Mar-21 and 31-Dec-21. Assuming that most of these shareholders would be holding less than 44 shares, a total of ~11 lakh shareholders would be eligible to offer their shares. “We think that the likely acceptance ratio would be between 45-70%. Even at this low acceptance, an investor buying shares from the market till 21-Feb-22 and tendering the shares in the buyback could make decent absolute and annualized returns, provided the stock price does not fall below Rs 3,500 on the payout date,” it said.
Santosh Meena, Head of Research, Swastika Investmart Ltd: Participate
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“TCS buyback is a good opportunity for retail investors which is around 18% higher compared to Friday’s closing price. Historically, the acceptance ratio remained around 70% and the stock price manages to cross buyback price. If we look at the fundamentals then the outlook is bullish despite little expensive valuations and we have already seen some correction in the stock price from the 52-week high. Retail investors should participate in TCS buyback where we are expecting an acceptance ratio between 50-70% and investors can hold the remaining shares for the long term.”
Expected RoI
IIFL Securities table showing the sensitivity analysis of the expected return on investment after incorporating different acceptance ratio and stock price movement
