TCS Q2: Revenue beats estimates, ₹16,000 crore share buyback announced

Tata Consultancy Services Ltd (TCS) India's biggest software services exporters, on Thursday reported 4.9% year-on-year (YoY) growth in net profit at ₹8443 crore for the second quarter ended September 2020. On a sequential basis profit was 20.3% higher. The profit excludes the ₹1218 crore provision declared for the Epic Systems case.

The company reported revenue of ₹40,135 crore up 3% YoY and 4.7% QoQ. Earlier this week, the company informed the exchanges that in the EPIC Systems Corporation matter, TCS would be providing ₹1,218 crore as exceptional item, in the financial results for the three and six months ended September 30, 2020.

According to 10 analysts surveyed by Bloomberg, the company will report a profit of ₹7,754 crore on sales of ₹38,926 crore. The company also announced buyback of ₹16,000 crore worth of shares.

Commenting on the Q2 performance, Rajesh Gopinathan, Chief Executive Officer and Managing Director, said "Driving accelerated business value realization of our customers' digital investments has resulted in broad-based revenue growth. The strong order book, a very robust deal pipeline, and continued market share gains give us confidence for the future."

Today the company approved a proposal to buy back up to 5,33,33,333 equity shares of TCS, being 1.42% of the total paid up equity share capital, at ₹3,000 per equity share for an aggregate c1 mount not exceeding ₹16,000 crore (excluding taxes and related expenses), on proportionate basis under the tender offer route using the stock exchange mechanism, subject to approval of the members by means of a special resolution through a postal ballot.

In 2018, the company went for a ₹16,000 crore share buyback and this time analysts had expected the buyback size of up to ₹22,000 crore. The 2018 buyback, at ₹2,100 per equity share, had entailed up to 7.61 crore shares. TCS had announced the mega buyback offer as part of its long-term capital allocation policy of returning excess cash to shareholders.

The IT service provider also became the second Indian company to eclipse Rs10 trillion in market value as continued optimism over demand for technology services and the proposed share buyback this week. Its shares closed at ₹2737 on BSE today.

Gopinathan also added. "What we are witnessing right now is the start of the first phase of a multi-year technology transformation cycle. In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core. In subsequent phases, we will see the native capabilities of these platforms being utilized to create innovative new business models and differentiated customer experiences.”

BFSI (+6.2%), Retail and CPG (+8.8%) and Life Sciences and Healthcare (+6.9%) segments led the growth. Technology & Services grew 3.1%, Manufacturing +1.4% while Communications & Media slowed by -2.4%. All markets showed good sequential growth, with North America growing 3.6%, UK +3.8%, and Continental Europe +6.1%: Emerging markets also grew well, with India growing 20%, M£A +8%, Latin America +5.5% and Asia Pacific +2.9%.