TCS sees sustainable demand recovery

Tata Consultancy Services Ltd (TCS) said it expects demand for software services to continue to gain pace as clients adopt digital technologies at a rapid clip to ensure business continuity, indicating that growth is being aided rather than impeded by the coronavirus pandemic.

On Wednesday, India’s biggest software services company reported a broad-based growth rebound across industries and markets, reporting a 3% rise in revenue to ₹40,135 crore in the quarter to September. Revenue rose 4.7% from the preceding three months.

“We think that demand recovery has strong legs. We definitely don’t see this as a catch-up demand, rather a sustainable demand going forward,” said Rajesh Gopinathan, chief executive officer and managing director. “We have been able to get back on track a quarter ahead of what we had expected and our confidence about H2 (next two quarters) is much higher.”

In the September quarter, the firm reported 4.9% growth in net profit to ₹8,433 crore from a year ago. On a sequential basis, profit rose by 20.3% higher but missed estimates, factoring the legal provisions announced earlier this week.

TCS was expected to report a profit of ₹7,754 crore on sales of ₹38,926 crore, according to 10 analysts surveyed by Bloomberg.

The company’s September quarter profit excludes the ₹1,218 crore provision for the Epic Systems case.

A US appeals court in August upheld compensatory damages of $140 million while directing reassessment of the punitive damage of $280 million against TCS in a trade secret lawsuit filed by American medical software company Epic Systems.

TCS said that its business segments such as cloud and security, analytics and cognitive business operations led the surge in future-focused discretionary investments for growth and transformation.

While the demand recovery will continue, the management cautioned of seasonal weakness during the December quarter because of the holiday season.

The board of TCS on Wednesday also approved a handsome cash gift to its shareholders, including parent Tata Sons Ltd, which is looking to mobilize resources to buy out Shapoorji Pallonji group’s 18.4% stake in the Tata group holding company.

TCS will spend ₹16,000 crore to buy back as many as 53.3 million shares, representing 1.42% of the total paid-up equity share capital at a price of ₹3,000 crore, a 10% premium to Wednesday’s closing share price.

TCS shares ended trading at ₹2,737.4, up 0.78% on BSE.

Tata Sons, which needs as much as ₹1.5 trillion to completely buy out SP Group’s 18.4% stake, stands to get a major boost of ₹11,528 crore ($1.57 billion) from the buyback.

According to a person aware of the group’s plans, Tata Sons is likely to participate to the full extent available to it under the buyback.

An email sent to Tata Sons did not elicit a response.