'Acceptance ratio for TCS buyback likely to be around 3%'

India’s biggest software exporter Tata Consultancy Services (TCS) may have announced the largest ever buyback in the history of the capital markets but investors may have little to cheer as only 3% of total shares tendered by each one of them are likely to be accepted by the company.

“We calculate that around 190.91 crore shares will be tendered into the buyback which gives us a pro-rate of 3% which implies very low pro-rate adjusted upside from current levels,” Religare said in a note post the buyback announcement.

“The retail acceptance ratio is likely to be around 13% while the overall acceptance ratio is likely to be 3%,” an analyst tracking the sector said.

According to the communique by TCS to the exchanges, 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 size does not include any expenses incurred or to be incurred for the buyback like filing fees, advisory fees, public announcement publication expenses, printing and dispatch expenses, and other incidental and related expenses.

 Religare has also indicated the likely timelines for the buyback in the note.

“Historically, these buybacks take around three months to conclude and based on our assessment, we would expect buyback window to commence towards end of April and buyback to conclude by mid-end May,” Religare said.

Angel Broking believes that the buyback is likely to improve the return on equity (ROE) of the stock. The buyback will take out a part of cash out of the books, this will enhance the overall ROEs as the proportion of the low yielding asset ( i.e. cash ) will be reduced in the balance sheet and hence will reward shareholders.