Tata Consultancy Services Ltd (TCS), India’s largest software services company by revenues, will consider a share buyback plan besides outlining its dividend policy to reward shareholders with the help of the excess cash the firm holds on its books.
TCS’ board is scheduled to meet on 20 February to approve the buyback plan, the company said in a stock exchange disclosure.
The firm did not disclose the quantum of the share repurchase it plans to make nor did it mention the value it would set aside for such a plan.
TCS had consolidated cash and cash equivalents (in the form of investments) worth Rs 43,170 crore ($6.4 billion) as of the three months ended 31 December 2016, compared with Rs 36,484 crore ($5.4 billion) as of the quarter ended 30 September 2016, the company said in an investor presentation last month.
According to a report by CNBC-TV18, Infosys too is likely to consider a share buyback worth Rs 12,000 crore ($1.77 billion). Last week, Cognizant said it will buy back shares worth $3.4 billion (around Rs 22,950 crore).
Last year, several firms came up with share repurchase plans to reward shareholders as share buyback improves return ratios by shrinking the equity capital base, resulting in higher earnings per share (EPS), though a repurchase at market price may not provide an immediate upside for small investors.
In listed Indian equities, the value of share buybacks announced last year stood at Rs 31,190 crore, the highest ever and more than the cumulative value of the last six years. As many as 43 Indian firms announced share buyback plans in 2016, the highest in the last eight years, data from Capitaline show.
Share repurchases have also emerged as a preferred option for firms to reward shareholders compared with dividends after the government introduced an additional levy on dispensing dividends in the last budget.
Finance Minister Arun Jaitley, in his budget speech on 29 February 2016, introduced a 10% tax on individuals receiving dividend income in excess of Rs 10 lakh per annum, starting 1 April. This levy is over and above the 20.47% tax that Indian companies pay as dividend distribution tax (DDT). Following the decision, listed Indian rewarded shareholders with dividends worth Rs 65,385 crore before the end of the March 2016 quarter.
Shares of TCS jumped 2.3% as Thursday’s session opened for trading, before the stock pared some gains. In mid-morning trade on BSE, the scrip was quoting at Rs 2,440.10, over 1% higher than Wednesday’s close price of Rs 2,415.70 per share.
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