Tata Sons’ stake in TCS may fall post buyback

Mumbai: Tata Sons will likely end up lowering its stake in software unit Tata Consultancy Services after the Rs 16,000-crore share buyback as the price offered to repurchase equity is unlikely to entice majority of the minority shareholders. With the TCS stock trading at 6 per cent below the share buyback price of Rs 3,000 apiece and the outlook for technology shares strong, fund managers told ET most institutional investors may not give up their shares, making Tata Sons the bigger participant in the offer.Shares of TCS, the country’s largest software exporter, rose 3.19 per cent to close at Rs 2,824.80 on Thursday on better-than-expected second quarter results. Most analysts are projecting a price target of Rs 3,300-4,000 on TCS in the foreseeable future.“It does not make sense to tender the shares (in the TCS buyback) unless there is a big selloff,” said the chief investment officer of one of the biggest mutual funds on condition of anonymity. “The floor is open for Tata Sons to raise the maximum.”TCS, India’s second-largest company by market value has announced buyback of 5.33 crore shares, which represents 1.42 per cent of the outstanding shares. The company had net cash of Rs 50,562 crore as on September 30, 2020. Tata Sons can tender at least 3.84 crore shares that will help it raise Rs 11,500 crore.“We expect Tata Sons to participate in the buyback process, but the public shareholders may not. This could bring down promoters’ stake to 71 per cent from current 72.05 per cent,” said Suyog Kulkarni, analyst, Reliance Securities.In the last two buybacks in 2017 and 2018, Tata Sons was able to maintain its holding in TCS because of participation from public shareholders. The buyback by TCS this time has been under the spotlight as it comes amid the conflict between the Tata Group and its biggest minority shareholder Shapoorji Pallonji (SP) Group. The speculation is the buyback is part of Tata Sons’ efforts to raise cash with the Pallonji Mistry family offering to sell its 18.4 per cent stake in Tata Sons back to the group.Institutional investors are relieved that the group has opted for a buyback over a share sale to raise funds. “By choosing buyback, Tatas have opted a better strategy because it will improve EPS and other return ratios like ROE, ROCE,” said Gaurav Dua, head – capital market strategy, Sharekhan. “Retail shareholders should not tender their shares as the future remains bright for the company which is firing all cylinders.”TCS shares have gained almost 69 per cent in the past six months compared to the 58 per cent surge in Nifty during the same period. Other technology shares such as Infosys, HCL Tech and Wipro too have run up as the sector is expected to be resilient in challenging economic conditions.“While the TCS management has been consistently fair with its buyback premium pricing in the past three occasions, I do not think even they are expecting any public shareholder participation this time,” said the top official of another large mutual fund. “TCS shares are at premium valuations but that is unlikely to change immediately.”

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