TCS dips 1% as Q2 result misses estimates; announces Rs 17,000 cr buyback

Shares of Tata Consultancy Services (TCS) dipped 1 per cent to Rs 3,560.05 on the BSE in Thursday’s intra-day trade after the IT major reported net profit of Rs 11,342 crore, up 8.7 per cent year-on-year (YoY) the for September 2023 quarter (Q2FY24). Sequentially net profit grew 2.42 per cent.

Revenue for the quarter came in at Rs 59,692 crore, up 7.9 per cent YoY.

TCS missed the Bloomberg estimates on both revenues and net profit. Bloomberg had estimated revenues at Rs 60,353 crore and net profit at Rs 11,409 crore.

However, the company’s order book remains strong at $11.2 billion. This was the third consecutive quarter when it came in around $10 billion.

TCS board on Wednesday also announced interim dividend of Rs 9 per share and buyback worth Rs 17,000 crore, at Rs 4,150 per share, a 15 per cent premium to Wednesday’s closing price. This is the fifth buyback from the company since 2017.

Meanwhile, TCS, reported muted revenue performance with revenue at $7.21 billion, up 4.8 per cent YoY and down 0.2 per cent QoQ basis. On constant currency (CC) basis, revenue was up 2.8 per cent YoY.

Lower QoQ topline despite strong order booking was attributed to revenue leakage from existing projects due to deferrals or ramp downs impacting revenue growth. The positive was healthy orderbook at $11.2 billion, up around 10 per cent QoQ driven by marquee deals (JLR/BSNL worth $1 bn each) bagged in Q1, ICICI Securities said in a note.

The management maintained that near term demand challenges remain and refrained from giving recovery timelines, implying a slow and gradual recovery ahead. The stock could react negatively in short-term on growth uncertainty ahead and lower than expected premium on buyback, the brokerage firm said.

The weakness in revenue growth was majorly led by continued slowdown in discretionary spends and clients reprioritizing cost optimization projects. However, the client engagement remained strong and TCS continued to chase multiple opportunities, as seen in robust deal wins in Q2, Motilal Oswal Financial Services said.

Q2 EBIT margin improved by 110bp to 24.3 per cent due to the recalibration of gross hiring coupled with incremental measures to rationalize the pyramid. Given continued uncertainty in the demand environment in FY24, the brokerage firm said it have trimmed our FY24/FY25 EPS estimates by 0.7 per cent/1.8 per cent. However, it reiterates BUY on the stock with a target price of Rs 4,060 per share.