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TCS Q2 profit grows 6.7% to Rs 7,475 crore QoQ, announces Rs 16,000-crore share buyback

Adjusted profit growth was strong at 20.3 percent to Rs 8,433 crore (excluding legal claim provisions) led by revenue growth and margin expansion.

Tata Consultancy Services, the largest IT services company in India, on October 7 reported a profit after tax of Rs 7,475 crore for the quarter ended September 2020, registering a 6.7 percent sequential growth, with a share buyback of up to Rs 16,000 crore and deal wins of $8.6 billion.

The bottomline was impacted by the provision of Rs 1,218 crore in the EPIC Systems Corporation legal case, but adjusted profit growth was strong at 20.3 percent to Rs 8,433 crore (excluding legal claim provisions) led by revenue growth and margin expansion.

"On August 20, 2020, the US Court of Appeals, 7th Circuit, Chicago, returned a verdict on the appeal filed by TCS, reducing the damages award. The Court held that the punitive damages award of $280 million is constitutionally excessive, vacated the punitive damages award and directed the Trial Court to reassess the punitive damages. The Court upheld the compensatory damages award of $140 million," TCS had said earlier.

Consolidated revenue from operations for the quarter grew by 4.7 percent sequentially to Rs 40,135 crore, while the company registered a 4.8 percent QoQ growth in constant currency and 7.2 percent in dollar revenue for the quarter ended September 2020.



"Driving accelerated business value realisation of customers' digital investments has resulted in broad-based revenue growth. The strong order book, a very robust deal pipeline, and continued market share gains give confidence for the future," Rajesh Gopinathan, Chief Executive Officer and Managing Director said.

"What we are witnessing right now is the start of the first phase of a multi-year technology transformation cycle. In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core. In subsequent phases, we will see the native capabilities of these platforms being utilized to create innovative new business models and differentiated customer experiences," he added.

The deal wins for the quarter were strong with total contract value at $8.6 billion, against $6.9 billion in Q1FY21.

TCS beat estimates on all earnings parameters. Profit was estimated at Rs 6,744 crore on revenue of Rs 39,330 crore and dollar revenue was expected at $5,297 million for the quarter, according to the average of estimates of analysts polled by CNBC-TV18.

While addressing press conference, Gopinathan said the company was in the midst of a sustainable demand recovery and has been able to pull forward margin recovery to Q2 against earlier estimate of Q4, CNBC-TV18 reported.

The recovery has "strong legs" going forward, but the seasonal weakness of Q3 will continue, he added.

The revenue growth in September quarter  was led by BFSI (up 6.2 percent QoQ), Retail (up 8.8 percent QoQ), and Life Sciences and Healthcare (up 6.9 percent) segments.

Technology & Services grew 3.1 percent, Manufacturing up 1.4 percent, while Communications & Media degrew by 2.4 percent, said the Tata Group company.

TCS further said all markets showed good sequential growth, with North America growing 3.6 percent, the UK up 3.8 percent, and Continental Europe up 6.1 percent, while emerging markets also grew well, with India growing 20 percent, MEA up 8 percent, Latin America up 5.5 percent and Asia Pacific up 2.9 percent.

"A surge in future-focused discretionary investments for growth and transformation drove a strong, broad-based rebound in growth across industry verticals and geographies, led by Cloud & Security, Analytics and Cognitive Business Operations," TCS reasoned.

The board members of the company have approved a proposal to buy back up to 5,33,33,333 equity shares of company, being 1.42 percent of the total paid up equity share capital, at around Rs 3,000 per equity share for an aggregate amount up to Rs 16,000 crore.

Also the company has declared a second interim dividend of Rs 12 per equity share.

On the operating front, consolidated earnings before interest and tax (EBIT) grew 16.3 percent QoQ to Rs 10,689 crore with margin at 26.2 percent for the September quarter.

"IT services attrition rate hit an all-time low at 8.9 percent LTM," TCS said, adding investments in people, progressive HR policies and an empowering culture have made TCS the global industry benchmark in talent retention.

The salary increases will be rolled out with effect from October 1, it said.

Samir Seksaria is going to take over the role of Chief Financial Officer with effect from May 1, 2021, it added.

The stock gained 20 percent during the quarter. Meanwhile, Nifty IT index outperformed during the September quarter, rising over 35 percent.

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