Tech Mahindra announced a share buyback plan on Thursday at a price of Rs 950 per share through a tender offer. The stock did not react to the news massively for two reasons. First, the amount is less than the 10 percent of the company's net worth. And, second, the stock was already priced in much before when the news was doing the rounds. Within one month, the stock rose up to 15.26 percent.

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Following the announcement, Tech Mahindra shares rose over 3 percent to a 52-week high of Rs 840 per share, but failed to hold the momentum and settled at Rs 820.40 per share, up 1.07 percent.

At 11.24 AM, the stock is trading at Rs 820.30 down by 0.04 percent on NSE.

Considering the current valuations of the company, it is trading at a value of 18.36 times to the current market price with return on equity of 20.66 percent. But Motilal Oswal doesn't see the stock as a 'value opportunity'.

The brokerage believes that the amount of Rs 1,956 crore was decided much later when the company needed capital for its future needs. Furthermore, this buyback is not in lieu of dividend. The company will not like to retain too much cash in its books and thus, it will apply the strategy of 'Dividend+Buyback' in the future depending on the need of the business.

In the past, Tech Mahindra's cash position has never crossed the line of more than Rs 4,000 crore, and currently, they hold Rs 6,500 crore cash. Thus, this buyback was necessary to bring the net cash down to the range of Rs 4,500 crore, said the report.

Normal dividend announcement in Q4 will pull it down further. If Tech Mahindra pays the same dividend as last year (Rs 14/share), then it will bring net cash down to Rs 3,000-3,500 crore.

First Published:Feb 22, 2019 12:26 PM IST