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  • 6 reasons why TCS buyback presents a ‘BUY’ opportunity

    Publish date: 28th June, 2018

    TCS announced on 15 June 2018 that its board of directors had approved a buyback of more than 7.6 crore shares of the company for an amount not exceeding Rs 16,000 crore. Each equity share would be purchased at the announced price of Rs 2,100.

    The market is excited about the buyback, especially after the successful buyback last year. But did you know, you can consider buying the stock before the buyback and sell it at the buyback?

    What our research team says:

    We suggest retail investor to accumulate ~95 share of TCS to participate in the buyback offer.

    Why participate in TCS buyback?

    The biggest reason lies in the pricing.

    A good price:

    TCS shares closed at Rs 1,844 on 28th June. However, the buyback price offered is Rs. 2,100 per share. That’s a difference of 13.3%. This can be a profit opportunity for short-term investors.

    But that’s not all. There are many more reasons too like:

    • Large-caps tend to have lower risks: Keeping current market conditions in mind, the TCS buyback can offer low risk and moderate returns to retail investors.
    • Better chance for small investors: SEBI has directed that in all buybacks, 15% should be reserved for small investors. This means small investors have a better chance of having their buyback bid accepted.
    • No debt, only cash: TCS plans to use its idle cash to buy back the shares. Post the buyback, TCS’s cash reserves would come down by 1/3rd.
    • Higher earnings per share: With reduction in share capital due to buyback, we expect EPS accretion.
    • Better acceptance ratio: We expect TCS’s buyback to have an acceptance ratio of more than 35% for retail investors. The acceptance ratio is the proportion of shares tendered in the buyback that the company could eventually buy.

    What if?

    We have worked out couple of scenarios regarding acceptance ratio and post buyback sale price, and thus, potential profits. You can find all these details and the price at which you can break-even on your investment in the research report.

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