TCS Rs 17,000 Crore Buyback: Should You Buy, Hold, Or Sell This Dividend King Tech Stock?

India's largest tech firm, Tata Consultancy Services (TCS) turned ex-buyback on November 24th ahead of the record date on Saturday. On the ex-buyback day, TCS shares tumbled by nearly 2%. The stock is currently at a discount from the buyback floor price. With buyback in focus, the stock is expected to witness a small correction before picking up momentum.

TCS has proposed to buy back up to 4.09 crore equity shares at a face value of Re 1 each. The size of the buyback is up to Rs 17,000 crore. For the buyback, TCS has fixed a floor price of Rs 4,150 per piece, which is at a 16.7% discount from the current market price.

On November 24th, TCS shares ended at Rs 3,457.60 apiece, down by Rs 51.35 or 1.46% on BSE. During the trading hours, TCS shares slipped by at least 1.6% with an intraday low of Rs 3,452.25 apiece.

Currently, it has a market cap of Rs 12,65,153.60 crore, making it the second-largest firm in India after Reliance and largest IT firm.

TCS announced the record date for buyback on November 25th, but since it was a weekend holiday, the share price turned ex-buyback on November 24th.

What should investors know about TCS share price?

Jigar S. Patel, Sr. Manager - Equity Research at Anand Rathi said, "After making a double-bottom structure around 3330-3340, we saw a 200-point pump in TCS. Having said that, at the current juncture, TCS has stalled near 3525-3550 (refer to the chart). Before continuing its upside momentum, one can expect a small correction until 3400-3420."

The current buyback is in--line with TCS' shareholder-friendly capital allocation practices of returning excess cash to shareholders, thereby increasing shareholder value in the long term and improving the Return On Equity.

This would be the fifth buyback by TCS in the last six years.

The last buyback offer by TCS was of Rs 18,000 crore in 2022, which was oversubscribed by 7.5 times. In this buyback, investors offered 30.12 crore equity shares at the buyback price of Rs 4,500 per share, against the buyback size of 4 crore shares.

In general terms, Buy-Back is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than the market price. When it buys back, the number of shares outstanding in the market reduces.

Some of the key reasons for buyback are --- to improve earnings per share; improve return on capital, return on net worth and to enhance the long-term shareholder value; provide an additional exit route to shareholders when shares are undervalued or are thinly traded; provide an additional exit route to shareholders when shares are undervalued or are thinly traded; enhance consolidation of stake in the company; prevent unwelcome takeover bids; return surplus cash to shareholders; achieve optimum capital structure; support share price during periods of sluggish market conditions; and service the equity more efficiently, as per BSE FAQs.

Apart from buyback, TCS is among the dividend king stocks. TCS first began rewarding shareholders with dividends in October 2004, and since then, it has delivered a total of 81 dividends. As per Trendlyne data, in the last 12 months, TCS paid a total dividend of Rs 117 per share.

Also, earlier, TCS has issued bonus shares in the ratio of 1:1 each on three different occasions such as July 2006, June 2009, and May 2018.

TCS Share Price Latest Target:

At the latest, Jefferies has recommended a Hold on TCS for a target price of Rs 3,529.85.

Meanwhile, Kotak Institutional Equities has recommended 'ADD' for a target price of Rs 3,760.

On the other hand, Motilal Oswal has suggested 'BUY' on TCS for a target price of Rs 4060.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.