TCS Q2 Results Highlights: Net profit rises 8.7% to ₹11,342 crore; board approves dividend, buyback of shares

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Shares of TCS will be in focus during tomorrow's session after reporting Q2FY24 results on October 11. Analysts expect the stock to open flat or in negative territory after revenue growth missed D-Street estimates. 

TCS was selected by the Georgia Department of Labor to replace its 1980s-era legacy platform with a proven, agile, secure, and scalable cloud-based unemployment insurance system that streamlines and speeds up the claims process, improves citizen experience and helps prevent fraud.

A global semiconductor manufacturer partnered with TCS to open an innovation center to build semiconductor designs and software solutions for the IoT, digital engineering covering infrastructure, industrial, and automotive segments.

TCS, India's second most valuable company by market capitalisation, has benefitted from an IT boom that has seen the country become a back office to the world through subcontracted work, according to news agency AFP.

The company earns more than 80 per cent of its revenues from Western markets, and alongside other tech companies benefited during the pandemic from the increased demand for digital services.

The IT major is the first among its peers to report quarterly results, setting the tone for an industry worth $245 billion that is staring at an uncertain demand environment in the US and Europe, its key markets.

The company appointed S. Sukanya as the Senior Vice President and Chief Information Officer. TCS also announced that Al-Noor Ramji, Hanne Birgitte Breinbjerg Sorensen, and Keki Mistry, the former vice chairman and CEO of HDFC, will become non-executive independent directors on the board.

The comapny has reappointed Hanne Birgitte Breinbjerg Sorensen and Keki Minoo Mistry as Non-Executive Independent Director, for a second consecutive term of 5 years from December 18, 2023 up to December 17, 2028. The IT major has appointed Al-Noor Ramji as an Additional and Non-Executive Independent Director for a term of 5 years, effective October 12, 2023, as per the filing.

As on September 30, 2023, the company has applied for 7,665 patents, including 218 applied during the quarter, and has been granted 3,153 patents including 149 granted in Q2. TCS was ranked a Leader in 38 competitive assessments published by leading research firms in Q2. In five of these, marked with an asterisk in the table below, TCS was positioned the foremost leader or ranked #1.

Among the key deal wins, BSNL has selected TCS to roll out a modern 4G and 5G mobile communication infrastructure across India covering 100K telecom sites, said the IT major.

-TCS was selected by a leading electricity distributor in APAC to deploy a secure, enterprise Generative AI Platform on Azure to respond to user queries on health and safety relating to electrical equipment.

-Jaguar Land Rover has expanded its strategic partnership with TCS to accelerate digital transformation across its business, the company said in its BSE filing. 

-TCS partnered with GE Healthcare’s Global IT function for digital transformation of global IT function. TCS will manage the development, maintenance, rationalization, and standardization of its enterprise IT applications.

-TCS said it was selected as a strategic partner by the Government of India to transform the Government e-Marketplace (GeM) platform. 

-A Dutch life insurance and pensions provider company Athora Netherlands has chosen TCS to transform its closed-book life business, the IT major said.

IoT & Digital Engineering: Growth in Q2 was driven by demand for TCS’ solutions in industrial IoT & AI, factory of the future, carbon footprint management and software defined vehicles. In competitive assessments published during the quarter, TCS was ranked the #1 engineering services provider of the year 2023, and the foremost leader in the Digital Twin services PEAK Matrix assessment 2023 by Everest Group.

Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd said, ‘’TCS reported Q2 earnings that met street expectations while buyback price was below expectations and even below the last buyback price. US Dollar revenue declined for the first time in many quarters while Q2 EBIT Margin was better than expectations.''

TCS board approved buyback of ₹17,000 crore at a price of ₹4,150 per equity share against street expectations of ₹4,300 to ₹4,500 per share. The buyback price is at a premium of about 15 per cent. The company will be buying back up to 4.09 crore shares which will be 1.12 per cent of the total equity share capital,'' said Tapse. 

‘’Reacting to Q2 numbers and buyback announcement, there is a high probability of neutral to negative opening for the TCS stock tomorrow morning,'' he added.

Constant Currency revenue growth: +2.8 per cent year-on-year
Net Income at ₹11,342 crore, +8.7 per cent YoY | Net Margin at 19 per cent
Net Cash from Operations at ₹11,823 crore → 104.2 per cent of Net Income
 

TCS Interactive: Digital interactive services continued to see strong growth driven by clients’ investments in experience-led transformation initiatives, and marketing effectiveness. There was increased demand in areas such as product design, marketing operations and customer and marketing data-driven insights, according to the IT major.

Among service lines, AI.Cloud, TCS Interactive and IoT and Digital Engineering led growth. TCS has over 250 Gen AI opportunities in the pipeline, driven by a rich catalog of use cases across industries, early adoption partnerships with hyperscalers and a 100,000-strong GenAI-ready workforce.

AI.Cloud: Launched in Q2, this unit brings together TCS’ three hyperscaler-dedicated cloud units and specialists in data sciences and AI/ML. Cloud Migration, composite data foundation, application modernization, workplace transformation and edge to cloud, coupled with AI adoption frameworks continued to drive growth in Q2. TCS’ investments in deepening competencies and building new capabilities continue to yield good results. TCS is a launch partner for hyperscalers in multiple new technology launches, including Generative AI. TCS’ catalog of GenAI use cases continues to expand across all industry segments.

In the industrie sector, growth was led by the Energy, Resources and Utilities1 vertical which grew 14.8 per cent, Manufacturing which grew 5.8 per cent and Life Sciences and Healthcare which grew 5 per cent. The Consumer Business Group (CBG) grew 1 per cent, BFSI witnessed a degrowth of 0.5 per cent. Communications & Media saw a degrowth of 2.1 per cent and Technology & Services registered a degrowth of 2.2 per cent.

Among major markets, the United Kingdom led with 10.7 per cent growth; North America grew 0.1 per cent and Continental Europe grew 1.3 per cent. In emerging markets, Middle East & Africa grew 15.9 per cent, Latin America grew 13.1 per cent, Asia Pacific grew 4.1 per cent and India grew 3.9 per cent.

With gross additions held below departures, TCS’ workforce stood at 608,985 as on September 30, The employee base includes 35.8 per cent women and 152 nationalities. Year till date, TCSers have clocked 26.4 million learning hours, and acquired 2.6 million competencies including 350,000 high demand competences. IT services’ attrition was at 14.9 per cent for the last twelve months.

N Ganapathy Subramaniam, Chief Operating Officer and Executive Director, said: “We continue to make investments in our people and new technologies. We now have a 100,000-strong pool of Gen-AI Ready consultants and prompt-engineers who are engaged in hundreds of Gen-AI projects for our clients across segments.”

He further added: “During the quarter, BSNL awarded us the project to integrate and deploy a modern, indigenous pan-India 4G and 5G mobile network. This is a huge milestone for TCS, and we have commenced the supply, planning, design, installation and commissioning, and optimization of this mobile network, satisfying a detailed set of requirements conforming to 3GPP standards and the roll-out will be completed in about 18 months.”

The company’s order book at the end of Q2FY24 stood at $11.2 billion, in line with analyst estimates of $11-13 billion and the book-to-bill ratio stood at 1.6. The order book is higher from the $10.2 billion TCV it had in the previous quarter. TCS reported the second-highest TCV ever in a quarter. Deal wins during the quarter reported a rise of 9.8 per cent compared to the June quarter.

Samir Seksaria, Chief Financial Officer, said the focus on improving employee utilization, productivity improvement and cost efficiency across helped the company expand its operating margin. "We will continue to push the growth, efficiency and innovation levers to further improve our profitability," he said.

The IT major's revenue from operations rose 7.9 per cent to ₹59,692 crore, compared to ₹55,309 crore in the corresponding period last year. The operating margin saw a nominal expansion of 0.3 per cent year-on-year at 24.3 per cent. The dollar revenue for the IT major stood at $7,210 million, compared to $7,226 million in the June quarter.

"Strong deal momentum delivered us a very large order book in Q2 – our second-highest TCV ever in a quarter, and a good pipeline. The resilience of demand for our services, our clients' willingness to commit to long-tenure programs and their continued appetite for experimentation with Generative AI (Gen-AI) and other new technologies give us confidence in our longer-term growth prospects," said K Krithivasan, Chief Executive Officer and Managing Director of TCS.

The board of directors of Tata Consultancy Services Ltd (TCS), announced its second interim dividend of ₹9 per equity share of ₹1 each post financial results on October 11, 2023, rewarding its shareholders. TCS post its first quarter results in July had announced a similar interim dividend of ₹9 per equity share of ₹1 each.

The second interim dividend shall be paid on Tuesday, November 7, 2023, to the equity shareholders of the Company, whose names appear on the Register of Members of the Company or in the records of the Depositories as beneficial owners of the shares as on Thursday, October 19, 2023, which is the Record Date fixed for the purpose.

TCS board approves buyback of ₹17,000 crore at a price of ₹4,150 per equity share. The buyback price is at a premium of about 15 per cent. ‘’The board of directors of the company at its meeting held today has approved a proposal to buyback up to 4,09,63,855 (Four crore nine lakh sixty three thousand eight hundred and fifty five) equity shares of the company for an aggregate amount not exceeding ₹17,000 crore (Rupees seventeen thousand crore only), representing (1.12) per cent of the total paid-up equity share capital, at ₹4,150 per equity share,'' said TCS in a regulatory filing to the stock exchanges.

TCS reported a net profit of ₹11,432 crore in the September quarter, registering a growth of 8.7 per cent, compared to ₹10,431 crore in the corresponding period last year. Sequentially, the consolidated net profit was up 2.4 per cent as the IT major reported a profit of ₹11,074 crore in the perceding June quarter.

The IT behemoth had earlier said its board of directors would consider and approve share buyback in its board meeting scheduled for 11 October. The market expects the buyback price to be around ₹4,300 to ₹4,500 per share and the TCS buyback size to be nearly ₹18,000 crore. With this, the Tata group company will be announcing its fifth share buyback in the last six years.

On what TCS share price chart suggests, Sumeet Bagadia, Executive Director at Choice Broking said, "Those who have TCS shares in portfolio, they are advised to maintain stop loss at ₹3,550 apiece levels. In case of further upside, TCS share price may go up to ₹3,750 and ₹3,800 apiece levels in near term." Choice Broking exopert advised 'buy on dips' strategy in TCS shares expecting bounce back in stock from support levels, if there is profit booking taking place in the stock after declaration of Q2 results 2023.

Stock market experts believes that TCS buyback is a strategic move to bring confidence among TCS shareholders as company wants to showcase confidence in its future outlook. However, they advised fresh investors to buy TCS shares only when Q2 results 2023 are declared. They also advised investors to wait for the final declaration of share buyback and the premium at which TCS buyback price gets announced. Read full story here

Domestic brokerage BNP Paribas attributes the likely slow revenue growth trend for TCS in the September quarter to "the continued impact of a slowdown related to a cut in discretionary tech spending, partially offset by large deal ramp-ups".

Barring Nifty PSU Bank (down 0.73 per cent) and Nifty IT (down 0.07 per cent), all sectoral indices ended with gains. Nifty Bank closed 0.35 per cent higher while the Nifty Private Bank index rose 0.51 per cent.

TCS announced in a press release today that the company has been recognized as a leader in 5G engineering services by the Everest Group. The report highlights TCS’ proprietary solutions, such as Al-powered network operations tools, accelerators to build networks, ORAN component compliance, and management tools, that help clients design and deploy networks faster and manage them more efficiently.

‘’TCS, boasting a robust cash balance of ₹15,622 crore as of June 2023 and the noteworthy absence of debt, finds itself in a formidable financial position,'' said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.

Wipro, Tech Mahindra and Persistent Sytems are the top Nifty IT gainers today ahead of TCS results. Wipro settled 3.32 per cent higher, Tech Mahindra was up 0.23 per cent and Persistent ended 0.04 per cent higher on the NSE.

Despite strong deal wins, especially among the top three IT companies --- TCS, Infosys and HCL Tech -- analysts expect the September quarter to remain muted amidst the uncertainty in demand and continued caution on discretionary spending.

TCS share price ended nearly half a percent lower on Wednesday, ahead of the announcement of the company’s September quarter earnings. TCS shares closed 0.42% lower at ₹3,614 apiece on the BSE.

On NSE, TCS share price ended at ₹3,613 apiece, down 0.44% ahead of Q2 results.

Nifty IT Index traded lower ahead of the announcement of TCS Q2 earnings. HCL Technologies, Coforge, L&T Technology Services, TCS and Infosys were among the top drags in the index. On the other hand, Wipro, Tech Mahindra and Persistent Systems were the only gainers on the index.

On what TCS share price chart suggests, Sumeet Bagadia, Executive Director at Choice Broking said, "Those who have TCS shares in portfolio, they are advised to maintain stop loss at ₹3,550 apiece levels. In case of further upside, TCS share price may go up to ₹3,750 and ₹3,800 apiece levels in near term." The Choice Broking expert advised ‘buy on dips’ strategy in TCS shares expecting bounce back in stock from support levels, if there is profit booking taking place in the stock after declaration of Q2 results 2023.

On how TCS buyback offer would impact TCS share price movement, Arun Kejriwal, Founder at Kejriwal Research and Investment Services said, "Buyback is too small an event to push TCS share price because TCS buyback size would be like an ice tip in the ocean. As the market is expecting flat to muted Q2FY24 results by TCS, some downside can be expected in the stock if the results are declared in sync with the market expectation. My suggestion to fresh investors is to wait for both TCS buyback and TCS Q2 results announcement and then one should decide whether TCS shares can be bought or not.”

Speaking on TCS share price outlook, Sandeep Pandey, Director at Basav Capital said, "TCS buyback is a strategic announcement by the Indian IT major as it would bring confidence among investors as management is buying shares which would signal upside in TCS stocks in near term. However, it is also signaling that the company wants to stop selling after the Q2 results 2023. So, fresh investment is advised only when TCS buyback and TCS Q2 results 2023 are declared.

Nirmal Bang expects TCS to report revenue growth of 1% QoQ on CC basis, backed by strong order inflow of the last 12 months (consisting of large and mid-sized deals). It is likely to face cross-currency tailwinds of around 65 bps on QoQ basis.

It expects revenue of ₹60,859 crore and in USD terms, revenue of $7,346 million in Q2FY24. Net profit is estimated at ₹11,481.8 crore and EBIT at ₹14,726.9 crore.

For Q2FY24, the brokerage expects EBIT margin to expand by 100 bps QoQ to 24.2% mainly because salary increases were taken in Q1FY24, which had impacted margin by 130 bps QoQ. With sub-con cost already at multi-quarter lows and in line with pre-pandemic times (7-7.5%), it will have to bank on pyramid restructuring, higher offshoring, higher utilization and use of automation, Nirmal Bang said.

TCS share price has risen over 10% in the last three months, while the stock has gained more than 11% year-to-date (YTD). TCS shares are up 18% in the last one year and nearly 29% in three years.

In comparison, the Nifty IT index has gained over 11% in three months and more than 13% YTD.

Indian IT players are likely to report a softer set of numbers for the second quarter of the current financial year (Q2FY24) due to prevailing headwinds in the key markets. Experts expect a marginal decline in the IT firms' EBIT margin on a year-on-year (YoY) basis as the cut in discretionary programs, the growth slowdown and the increase in costs such as travel and back-to-office expenses dent profitability.

Even though the Q2FY24 numbers of the Indian IT firms may be better than the last quarter to some extent, they may still fail to meet the expectations envisaged at the beginning of the year. Read IT sector Q2 earnings preview here

TCS’ TCV for Q1FY24 at $10.2 billion after strong TCV of $10 billion in Q4FY23 remained above the guided range of $7-9 billion. Brokerage firm Nirmal Bang believes that Q2FY24 TCV should be in the guided range including the BSNL deal (TCV of $1.8 billion). Outside of BSNL, it won two mega/large deals of JLR and NEST.

Shares of Tata Consultancy Services (TCS) have been in uptrend since early morning deals. TCS shares price today opened upside and went on to hit intraday high of ₹3,650 apiece on NSE, logging near one per cent intraday gain in near one hour of stock market's opening bell.

As IT giant is going to declare buyback of shares today along with its Q2 results 2023, market experts are advising fresh investors to wait for the declaration of Q2FY24 results as the market is expecting muted to flat quarterly numbers from the Indian IT major.

Stock market experts believe that TCS buyback is a strategic move to bring confidence among TCS shareholders as the company wants to showcase confidence in its future outlook. However, they advised fresh investors to buy TCS shares only when Q2 results 2023 are declared. They also advised investors to wait for the final declaration of share buyback and the premium at which TCS buyback price gets announced. Read full report here

The market expects the TCS share buyback price to be around ₹4,300 to ₹4,500 per share and the overall TCS buyback size to be nearly ₹18,000 crore. With this, the Tata group company will be announcing its fifth share buyback in the last six years.

Speaking on TCS buyback, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “Q2 results 2023 season is going to start from today with TCS board discussing and approving the Q2FY24 results of the company. However, the market is vigilant about the buyback of shares that the Indian IT major would be announcing today. As per my expectations, TCS buyback size would be around ₹18,000 crore and TCS buyback price can be around ₹4,300 per share to ₹4,500 per share.” Read full report here

TCS board will consider share buyback today. Earlier, the IT behemoth had conducted share buybacks in 2022 at ₹4,500 apiece with the total buyback valued at ₹18,000 crore. In 2020, 2018 and 2017, TCS share buyback were worth ₹16,000 crore each, all via the tender offer route.

In 2020, the company repurchased shares from investors at ₹3,000 apiece, in 2018 at ₹2,100 apiece, while in 2017, the TCS share buyback price was ₹2,850 apiece.

The board of directors of Tata Consultancy Services (TCS) will consider the proposal for equity share buyback at its meeting, scheduled to take place today, October 11. This will be its fifth share buyback in six years.

In its regulatory filing on October 6, TCS didn't disclose the quantum of the buyback it is considering. The last time the IT major had performed buyback was in 2020 worth ₹16,000 crore ($1.92 billion).

“Pursuant to Regulation 29(1)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, this is to inform you that the Board of Directors will consider a proposal for buyback of equity shares of the Company, at its meeting to be held on October 11, 2023,” TCS said in its BSE filing on October 6.

TCS is expected to report revenue growth at 0.8% in CC terms due to weak discretionary spends, with ~20 bps cross currency headwinds to result in reported USD revenue growth of 0.6% QoQ. EBIT margins are likely to improve by ~80 bps QoQ, aided by operating efficiencies, as per Sharekhan analysis.

The company is estimated to report a revenue of ₹60,073 crore and in USD terms at $7,273 million. The company’s net profit is expected to be at ₹11,287 crore and an EBIT margin of 24%.

TCS management’s commentary around BFSI, Retail, Telecom and Technology will be keenly watched - as TCS likely has the highest exposure in the Tier-1 set with deep relationships developed over the past several decades in both US as well as Europe, analysts said.

Moreover, things to watch out for include - what kind of margins and working capital cycle will we see in the BSNL deal? How is it planning to piggyback on the BSNL deal to create traction in the Open RAN space abroad?; Demand commentary for H2FY24; Conversion of TCV to revenue; commentary around BFSI demand and usage of Gen AI to improve productivity.

TCS’ growth is expected to stay muted due to weak macro. Expect 1.1% QoQ CC growth for Q2FY24. EBIT margin is expected to improve 90 bps QoQ, after the wage hike impact in Q1. The deal pipeline should remain resilient, especially in the UK regions, while the US and Europe continue to stay on a weaker trajectory, according to Motilal Oswal Financial Services.

The brokerage firm expects a revenue of ₹60,400 crore and a net profit of ₹11,600 crore in Q2FY24. The company is estimated to report EBIT of ₹14,600 crore and EBIT margin of 24.1%.

Outlook on near-term demand environment, BFSI, and deal wins are the key monitorables, the brokerage said.

TCS’ earnings before interest and tax (EBIT), or the operating profit, during the quarter under review is estimated to grow 2.2% sequentially to ₹14,052.8 crore from ₹13,755 crore.

Analysts expect TCS’ margins to improve by 30 bps to 23.5% from 23.2%, QoQ, on the back of wage hike normalisation given in Q1 and aided by operating efficiencies.

TCS is expected to report a net profit of ₹11,193.4 crore in the second quarter of FY24, registering a growth of 1.1% from ₹11,074 crore in the previous quarter. The IT major is likely to face cross-currency tailwind of around 65 bps on QoQ basis.