TCS buyback offer - opportunity for retail investors

Ruchit Jain Ruchit Jain 7th September 2023 - 05:09 pm

TCS has recently announced its biggest share buyback of ₹ 180 bn at ₹ 4,500 per share. The company has announced 23rd February 2022 as the record date for the purpose of determining the equity shareholders who shall be eligible to participate in this share buyback.

Retail investors could potentially benefit from this in the short term buy buying the shares now and tendering those shares in the buyback to earn a decent return on their investment.

TCS Buyback – How could Retail Investors benefit in short term?

This opportunity is only for those retail investors who hold up to ₹ 200,000 worth of shares of TCS.
The quota for retail investors is reserved at 15% of the total buyback.

Hence, from the 40 million shares being bought back by the company, 6 million shares will be reserved for retail category.

So can a retail investor can just buy shares worth ₹ 200,000 at CMP of ₹ 3,784 and sell at ₹ 4,500 and earn the difference as a profit?

Well, there could be different scenarios which one has to consider.

Let’s first learn about entitlement ratio before looking into calculations. Entitlement ratio gives an indication of the minimum number of shares that will be accepted in the buyback. It's always calculated on the record date.

In the past, retail investors got 100% acceptance when they tendered their shares in the TCS buybacks during 2017, 2018 and 2020.

However, let us take a conservative approach and assume that the acceptance ratio this time could be lower.

Below are the three different possible scenarios to arrive at probabilities to make money in the short term for retail traders.

TCS Buyback
Buy Back Price	4500	4500	4500
CMP (17-02-22 Closing)	3784.2	3784.2	3784.2
No. of shares to be bought	44	44	44
Acceptance Ratio %(Assumption)	30	40	50
No. of shares accepted	13	18	22
Profit on accepted shares	9449	12598	15748

Let’s look at these different scenarios

With the cap of ₹ 200,000 for retail investors, an investor can purchase a maximum 44 shares.

Hence at the CMP of ₹ 3,784, your investment would be an amount of ₹ 166,505.

Profit calculation based on acceptance ratio

Scenario 1 - Assuming that an investor purchases shares at the current market price of ₹ 3784 and only 30% of his shares get accepted, the investor would make a profit of ₹ 9449 on the 13 shares accepted by the company.

Scenario 2 - Assuming that an investor purchases shares at the current market price of ₹ 3784 and only 40% of his shares get accepted, the investor would make a profit of ₹ 12598 on the 18 shares accepted by the company.

Scenario 3 - Assuming that an investor purchases shares at the current market price of ₹ 3784 and only 50% of his shares get accepted, the investor would make a profit of ₹ 15748 on the 22 shares accepted by the company.

However, this is not the final return. The investor will continue to hold the balance shares which will not be accepted in the offer. So the overall returns will depend on TCS share price over next few months. If the prices go higher, then the overall returns could be even higher.

However, if prices decline, then the returns overall returns would reduce.

This could be a good opportunity for short term investors willing to take a well calculated risk to make a good return on their investment.