TCS buyback does little for investor mood as outlook muted

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₹3,679 apiece after its board proposed a buyback plan. A buyback is a way of rewarding shareholders where a company buys back its shares usually at a premium to current prices. On 11 October, along with its September quarter (Q2FY24) earnings, the company announced a buyback of ₹17,000 crore for ₹4,150/share, a premium to Wednesday’s closing price of ₹3,609.90 per share on the NSE.

TCS has also announced an interim dividend of ₹9 per share. This is the fifth buyback by TCS in recent years and certainly points to the company’s strong cash flow generation. However, the lingering uncertainty around demand in the IT sector and no clear direction of a turnaround offset TCS’ efforts to boost investors’ confidence.

This is somewhat mirrored by the stock’s muted reaction in early trade on Thursday. The mixed Q2 results coupled with subdued management commentary (read: reiteration of Q1FY24) did little to boost investor sentiment. In constant currency terms, revenue growth was flat at 0.1% sequentially, impacted by ongoing softness in discretionary spending.

The company witnessed slowdown in key verticals of BFSI and retail; among geographies, US and Europe were weak. On the bright side, Ebit (earnings before interest and tax) margin rose 110 basis points sequentially to 24.3%, ahead of analysts’ estimates. This expansion was aided by improved productivity, higher utilization and optimization of sub-contracting costs.

The divergence between a robust deal pipeline and muted revenue growth though remains a bothersome issue. The total contract value of orders stood at solid $11.2 billion, up 10% sequentially, with the book-to-bill improving to 1.6x. Cost takeout and consolidation deals (which basically help clients in optimizing