Software major Tata Consultancy Services Ltd (TCS) on Monday announced buyback of up to 5.61 crore shares, or 2.85 per cent of its share capital, for Rs 16,000 crore at Rs 2,850 apiece, as it looks to return surplus cash to shareholders.
The buyback will be the biggest in the Indian capital market ever.
TCS said in a stock exchange filing that its board approved buyback of up to 5.61 crore shares, or 2.85 per cent of its share capital, at Rs 2,850 apiece.
The decision comes at a time when India's largest software services provider is under pressure of losing revenue from its clients in the US, which accounts for 65 per cent of of the USD 155 billion industry, under President Donald Trump's protectionist measures.
The share buyback, if successful, will be India's biggest, surpassing Reliance Industries' 2012 share repurchase of Rs 10,400 crore.
TCS shares rallied 4.08 per cent or Rs 98.35 per share to close at Rs 2,506.50 on the BSE, the highest closing price in five months.
"TCS Board of Directors has approved a proposal to buyback up to 5.61 crore equity shares of the company for an aggregate amount not exceeding Rs 16,000 crore," the company said in the filing.
The board meeting was last for outgoing TCS chief executive N Chandrasekaran who is set to take over as chairman of parent Tata Sons Ltd, which controls 73.3 per cent of the software developer, tomorrow.
The pre-buyback shareholding pattern as on February 17 showed that the promoter (Tata Group) owns 73.31 per cent in the software major, followed by FII, FPI, NRIs, foreign national and OCB 16.89 per cent, Indian FIs, banks and mutual funds 5.31 per cent, resident individual and others 3.80 per cent, bodies, corporate, LLP, Trust and NBFC 0.59 per cent and clearing members 0.10 per cent.
A total of 636,975 institutional and individual investors hold the company's 19.7-crore equity shares.
Chandrasekaran had last week stated the company had received suggestions from investors over the need for certainty on dividend policy along with share buyback to distribute large amount of cash to its shareholders.
TCS has a cash pile of Rs 43,169 crore, which is nearly 10 per cent of the company's market capitalisation.
Earlier this month Cognizant Technology Solutions Corp announced USD 3.4 billion share buy back, bowing to pressure from activist investor Elliott Management Corp.
Share buybacks typically improve earnings per share and return surplus cash to shareholders while also supporting share price during periods of sluggish market condition.
Infosys too is being pressed with a demand for share buyback. Infosys is amid a bitter spat between a clutch of high-profile founders and the management primarily over utilisation of cash surplus for enhancing shareholder value
rather than paying hefty pay hikes to the chief executive and severance package to departing employees.
Infosys' former CFO V Balakrishnan had demanded share buyback to protect shareholders' interest.
Infosys, which is India's second largest software services firm, is sitting on a cash pile of Rs 35,697 crore or USD 5.25 billion (as on December 31, 2016).
Balakrishnan, along with former colleague TV Mohandas Pai, had sought a USD 1.8 billion buyback in 2014 as well, just as its CEO Vishal Sikka was taking over.
TCS said the buyback is proposed to be made from the shareholders of the company on a proportionate basis under the tender offer route using the stock exchange mechanism.
The buyback is subject to approval of the members by means of a special resolution through a postal ballot, it said.
The public announcement setting out the process, timelines and other requisite details will be released in due course in accordance with the Buyback Regulations.
Following Cognizant's USD 3.4 billion buyback announcement, industry watchers had warned that floodgates for Indian IT firms could open with investors demanding similar action from domestic firms that are sitting on large amounts of unutilised cash on the books.
TCS' outgoing chief N Chandrasekaran had said that the company had received suggestions from investors over the need for certainty on dividend policy along with share buyback to distribute the cash.
While there are reports that Infosys may consider a Rs 12,000 crore share buyback, the company said it will take a decision on buyback at an "appropriate time".
Wipro -- which had a gross cash position at Rs 33,155.3 crore (USD 4.9 billion) as on December 31, 2016 -- completed a buyback worth Rs 2,500 crore last year.
The call for buyback by investors comes at a time when growth in the Indian IT sector has been slowing down amid multiple headwinds like changing technology landscape, global events like Brexit and concerns over tightening of H-1B visa regime by the Donald Trump administration in the US.
(With PTI inputs)