TCS rallies on news of a possible buyback, expanded business deal

The TCS stock also gained from reports that the IT services provider has expanded its contract with M&G Prudential to nearly double the deal value to over $1.2 billion in ten years.

In January, TCS had announced a $690-million deal with the insurer to move the administration of 4 million customer policies to the IT company. The deal has now been expanded to include an additional 1.8 million contracts and is worth an additional $668 million over the term of the contract, TCS said.

The TCS stock rallied over 2 per cent in morning trade after India’s largest software exporter said that its board will meet on Friday to consider a proposal to buy back shares.

"... the Board of Directors will consider a proposal for buyback of equity shares of the Company, at its meeting to be held on June 15, 2018," TCS said in a filing late Tuesday.

At 12.30 pm the stock was trading at Rs1,819.80, up Rs38.80 or 2.18 per cent from its previous close.

The stock price has been on an uptrend so far in the year 2018, gaining 34 per cent and nearly 50 per cent since June last year.

Media reports pegged the buy-back at around Rs10,000 crore even as TCS earlier said it will pay out 100 per cent of its free cash flows to shareholders. TCS had made 118 per cent payout in the 2017-18 financial year.

Last year, TCS announced a Rs16,000-crore mega share buyback at Rs2,850 apiece that closed on 31 May.

The latest buyback programme from TCS is in line with management stated strategy of giving back 80-100 per cent of free cash flows (FCF) to shareholders. In the last five years, TCS average FCF pay-out was around 80 per cent.

During a recent media interaction, the company’s chief executive officer Rajesh Gopinathan had said the company would distribute 80-100% of its free reserves and free cash generated in a year to shareholders.