Shares of Tata Consultancy Services Ltd (TCS) on Monday surged about 3.5% after the firm said its board will consider buyback of shares on 12 January.
The stock touched a high of Rs 3979.90 on BSE, up 3.47 percent from its previous close. At 9.20am, the scrip was trading at Rs 3925.75, up 2.1% from its previous close.
The board will also meet to announce third quarter earnings. This will be the fourth buyback and in earlier three buybacks Tata Sons was the biggest beneficiary.
In 2021, TCS bought back more than 53 million shares at Rs 3000 a share and 33.33 million shares were accepted under the offer. In 2017 and 2018 as well it undertook two buybacks and the size was around Rs 16000 crore each. At the end of September 2021, TCS had cash and cash equivalents of Rs 51950 crore.
The latest move comes after Tata Sons buying Air India from the government for Rs 18000 crore. The firm will pay Rs 2700 crore to the government and the rest will go to paying debt. Tata Sons holds 72% stake in TCS currently.
In September 2021, Infosys announced a buyback of Rs 9200 crore while in January 2021 Wipro conducted a Rs 9500 crore buyback. In 2018, HCL Tech had undertaken a Rs 4000 crore buyback.
Analysts say share buybacks typically improve earnings per share and return surplus cash to shareholders while also supporting the stock during sluggish market conditions.
On the earnings front, analysts expect TCS to report strong earnings for the December quarter. Antique Stock Broking expects it will report constant currency growth of 3% quarter on quarter and dollar revenue growth of 2.5% quarter on quarter, with cross currency headwind of 50 basis points.
“The strong results should be led by broad-based growth across sectors. Expect margin expansion of 40 basis points led by operational efficiency and strong growth,” Antique Stock Broking says adding “key investors focus areas will be commentary on demand trends, momentum around deal wins/pipeline and update on attrition”. The brokerage firm has given buy rating and set target price of Rs 4325 a share.
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