TCS Board to Discuss Buyback Alongside Q2 Results on 11-Oct-2023

On 9-October--2023, Tata Consultancy Services (TCS) made headlines as its shares opened one percent higher and reached a 52-week high of ₹3,659. This surge in stock price was triggered by the company's announcement of plans to consider a share buyback, which would coincide with the release of its July-September results on 11-October. However, the initial excitement in the stock market was short-lived as TCS shares traded only marginally higher later in the day.
The stock's reaction was in line with the sentiments expressed by foreign brokerage Morgan Stanley. According to Morgan Stanley, the buyback announcement was unlikely to trigger a significant outperformance of the stock because the market had anticipated this move for the past two quarters, which might have tempered the market's response.

Buyback Trend in the IT Sector

TCS's decision to initiate a share buyback followed similar moves by other major information technology companies earlier in the year. In February, Infosys completed a buyback worth ₹9,300 crore, and in June, Wipro announced its largest-ever share buyback of ₹12,000 crore.

TCS has a history of conducting share buybacks. In 2022, the company bought back shares worth ₹18,000 crore. Before that, TCS carried out buybacks worth ₹16,000 crore each in 2020, 2018, and 2017 and  these buybacks were conducted through the tender offer route.

Given the challenges in quarterly earnings for IT companies, primarily due to a slowdown in order wins, the market was more concerned about TCS's July-September financial performance. Analysts expected a 1 percent sequential earnings growth for TCS in the second quarter, while Jefferies anticipated a 20-40 basis points margin expansion.

Morgan Stanley's earnings estimates for TCS for FY24-25 were lower than the consensus. The firm attributed this to pressure on margins and a relatively high stock valuation as significant headwinds for the IT company. They pointed out that TCS's premium compared to its own average for the past five years made the risk-reward ratio less favorable.

Brokerage firm Citi has expressed concerns about the ability of Indian IT companies, including Tata Consultancy Services (TCS Ltd.) and Infosys Ltd., to meet consensus estimates for the financial year 2024.

TCS's board is scheduled to meet on October 11, 2023, to consider the share buyback proposal, alongside its Q2FY24 financial results. Additionally, the company would also evaluate the possibility of an interim dividend.

Tata Consultancy Services (TCS) has been actively distributing dividends to its shareholders. In the last quarter company paid an interim dividend of Rs 9 per share, following  a final dividend of ₹24 per share, paid in June. TCS also paid a special dividend of ₹67 per share in January of the same year.

Financial Performance & Stock Return

In the previous quarter, TCS reported a nearly 17% year-on-year (YoY) rise in consolidated net profit to ₹11,074 crore, with consolidated revenue increasing nearly 13% YoY to ₹59,381 Crore. Tata Consultancy Services (TCS) has done really well in the stock market.

In the last six months, TCS shares went up by 12%, which is quite impressive. Over the past year, the stock has given a 17% return, showing it's a good investment. But the most exciting part is if you've been holding TCS shares for the last five years, your investment has almost doubled, giving you a whopping 91% return.

Nifty has shown strong performance over the past six months, with a 10% gain. It has also provided investors with a 13% return in the last year. Moreover, over the last five years, Nifty has exhibited remarkable growth, surging by 86%.