TCS surges 5%, hits new high on healthy Q2 results, Rs 16,000 crore buyback

The TCS board has approved a buyback amounting to Rs 16,000 crore; to buy back 53.3 million shares at Rs 3,000 apiece

Shares of Tata Consultancy Services (TCS) hit a fresh record high of Rs 2,875, up 5 per cent on the BSE in early morning deal on Thursday, after the company reported a healthy set of July-September quarter (Q2FY21) numbers that were above analysts' estimates.

The TCS board has also approved a buyback of Rs 16,000 crore to buy back 53.3 million shares at Rs 3,000 per share. The company has also declared an interim dividend of Rs 12 per share. The record date for interim dividend is October 15, 2020 while payment date is November 3, 2020.

TCS, the country’s largest IT services company, on Wednesday beat Street expectations in its Q2FY21 financial results, led by a rebound in growth in key verticals and geographies. The company reported 4.8 per cent quarter on quarter (QoQ) growth in dollar revenues (in constant currency terms) that was above analyst estimate of 2.6 per cent QoQ growth. Margins increased 260 basis points mainly due to improvement in gross margins and lower SG&A expenses.

Going forward, analysts expect TCS to witness a healthy margin trajectory led by cost rationalisation, improving growth in high margin digital technologies, benefits of lower attrition and operating leverage benefit.

“Global digital technologies are expected to witness robust growth (~20 per cent CAGR in next five years) led by robust growth in cloud, customer experience and robust growth in cloud native technologies. TCS is expected to be a key beneficiary of this trend leading to double-digit revenue growth over a sustainable period. This, coupled with industry leading growth & solutions, better capital allocation, stable management and higher revenue growth trajectory than witnessed in the past warrant a multiple re-rating for the company,” analyst at ICICI Securities said in result update note.

Those at Motilal Oswal Securities expect TCS to be relatively better positioned (v/s the sector) to navigate the current challenges and continue to gain market share from weaker/smaller players in vendor consolidation deals. "While we continue to be positive on the company, we remain Neutral on rich multiples,” they said in a post result report.

At 09:38 am; TCS was trading 4 per cent higher at Rs 2,852 on the BSE, as compared to 1.1 per cent rise in the S&P BSE Sensex. A combined 6.4 million equity shares were changing hands on the counter on the NSE and BSE.