Buyback, Dividends, Q2 Earnings; TCS In Focus; What To Expect From The IT Giant?

Tech giant Tata Consultancy Services (TCS) will be in focus during the trading week from October 9th to 13th for three key things. The Tata Group-backed flagship company is set to declare its Q2 earnings on October 11, but not just that it is also looking to reward shareholders. That being said, apart from Q2, TCS will also consider dividend payout, and shares buyback as well.

Ahead of the earnings, TCS shares settled the holiday-shorten trading week from October 2nd to 6th on a bullish note with an upside of nearly 3% on BSE. On Friday, TCS shares closed at Rs 3620.20 apiece, up by 0.9% on the exchange.

TCS market cap stood over Rs 13.24 lakh crore, being the largest company in the IT sector, and the largest in the country after Reliance Industries in terms of market share.

Here's what to expect from this Indian IT behemoth on October 11:

Buyback:

As per the regulatory filing, TCS said, "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." The details of the buyback will be known on this day.

The last buyback offer by TCS was of Rs 18,000 crore in 2022, which was oversubscribed by 7.5 times. In this buyback, investors offered 30.12 crore equity shares at the buyback price of Rs 4,500 per share, against the buyback size of 4 crore shares.

Interestingly, TCS shares still haven't touched the buyback price of Rs 4,500 per share of the Rs 18,000 crore buyback offer. In the history of its stock price since listing, TCS' all-time high up till this date is Rs 4,045.50 apiece which was recorded on BSE in January 2022. TCS got listed on BSE and NSE in August 2004.

The stock's current 1-year high and low are at Rs 3,634.25 apiece, and Rs 3,013.05 apiece respectively on BSE.

Apart from this, other buybacks launched by TCS are of Rs 16,000 crore each in 2020, 2018 and 2017.

Some of the key reasons for buyback are --- to improve earnings per share; improve return on capital, return on net worth and to enhance the long-term shareholder value; provide an additional exit route to shareholders when shares are undervalued or are thinly traded; provide an additional exit route to shareholders when shares are undervalued or are thinly traded; enhance consolidation of stake in the company; prevent unwelcome takeover bids; return surplus cash to shareholders; achieve optimum capital structure; support share price during periods of sluggish market conditions; and service the equity more efficiently, as per BSE FAQs.

Dividends:

Another reward that TCS is all set to give its equity shareholders would be a second interim dividend for the financial year 2023-24. This will also be considered on October 11.

In its regulatory filing, TCS said, "The second interim dividend, if declared, shall be paid 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."

Earlier, for FY24, TCS paid the first interim dividend to the tune of 900% amounting to Rs 9 per share. TCS is among the dividend king stocks in the IT sector and holds a strong track record of paying dividends to its investors from the profitability of the respective financial years. In FY23, TCS paid an eye-bulging 11,500% totaling to Rs 115 per share.

Q2FY24 Earnings:

On October 11, 2023, the board of directors of TCS will approve and take on record the audited standalone financial results of the company for the quarter and six-month period ending September 30, 2023.

For Q2FY24, JM Financial expects TCS constant currency revenue growth to be at 1% with 20 bps cross currency headwinds translating into 0. 8% QoQ USD revenue growth. Further, the brokerage expects a 55 bps expansion in EBIT margin led by lower sub-con expenses, better utilisation and currency benefits. While reported deal TCV to be healthy as indicated by a few large deal wins recently.

Hence, JM Financial predicts TCS revenue to be at Rs 60,229 crore in Q2FY24, up by 1.4% QoQ and 8.9% YoY. Net profit is forecasted to come at Rs 11,299 crore, a growth of 2% QoQ and 8.3% YoY.

Among key issues to focus on in TCS Q2, the brokerage highlighted -- demand outlook in US BFSI; any signs of stabilization, especially of discretionary projects/spends; demand outlook in the UK and Europe and any change in decision cycles, revenue conversion, book-to-bill ratio; overall deal pipeline and signing; any margin pressure due to large efficiency deals; and outlook on margins.

In the first quarter of FY24, TCS posted net income of Rs 11,074 crore, up by 16.8% YoY with a net margin of 18.6%. Revenue stood at Rs 59,381 crore, soaring by 12.6% YoY. In constant currency, the revenue growth was at 7% YoY. Operating margin also expanded in the quarter to 23.2%.

During Q1FY24, TCS revised its FY24 revenue guidance to 5% in July against the earlier 7% guidance.