Tata Consultancy Services kicked off the earnings season in an ebullient fashion as its net profits rose 6.7 per cent over the previous quarter to Rs 7475 crore as its clients raised spending on technology solutions. It had reported profits of Rs 7008 crore in the April-June quarter. However, it was 7 per cent lower than the net profit of Rs 8,042 crore in the year ago quarter.
TCS also announced a Rs 16,000-crore share buyback programme and declared an interim dividend of Rs 12 per share apart from resuming salary hikes for its employees from October.
The pandemic has affected several industries but it has had a positive rub-off on the IT sector as enterprises have accelerated their technological transformation with work from home and work from anywhere becoming the norm.
The demand recovery came a quarter earlier for TCS. The IT services giant had earlier said that an improvement would only happen in the third quarter of this fiscal.
Revenues during the period came in at Rs 40,135 crore, which is a growth of 3 per cent over Rs 38,977 crore a year ago. This is more than the pre-Covid topline of Rs 39,854 crore in the October-December 2019 quarter.
The net profit was lower than Street estimates as TCS has set aside Rs 1,218 crore for the case involving EPIC Systems Corporation. In October 2014, EPIC had filed a legal claim against TCS in the court of Western District Madison, Wisconsin, alleging infringement of its proprietary information.
At a virtual press conference on Wednesday, Rajesh Gopinathan, managing director & CEO, said TCS is confident that the current revival will sustain. However, he added that during the third quarter of this fiscal, the company may see a seasonal weakness and it is likely to be more exaggerated in a few verticals or regions.
Gopinathan said operating margins at 26.2 per cent are now at an eight-quarter high. Its performance was also broad-based across verticals and geographies during the quarter. The core BFSI vertical saw a sequential growth of 6.6 per cent in constant currency terms.
Sectors such as retail, which were earlier deeply impacted by the pandemic, saw a growth of 8.8 per cent. In terms of geographies, North America saw a quarter-on-quarter growth of 3.6 per cent even as other key markets such as the UK and Continental Europe grew 3.8 per cent and 6.1 per cent, respectively.
Buyback approved
At its board meeting on Wednesday, the directors approved a proposal to buy back up to 5,33,33,333 equity shares (1.42 per cent of its total paid up equity share capital) at Rs 3,000 per share for an aggregate amount of up to Rs 16,000 crore under the tender offer route. This marks a premium of 9.59 per cent to the closing price of the TCS scrip on the bourses on Wednesday.
Free cash flow had risen by Rs 20,830 crore to Rs 99,860 crore in the second quarter.
Meanwhile, Bangalore-based Wipro also announced that its board will meet on October 13 to consider a share buyback.