TCS buyback amount is slightly lower than the market anticipated. The Rs 16,000 crore buyback priced at Rs 3,000 is quite interesting. What is your opinion?
The quantum is smaller and won’t move the lever much. It won’t even be 1.7% of the capital.
The market was wondering if this buyback was to try and raise money for Shapoorji Pallonji, but it does not appear to be the case.
It’s actually only 1.5% of the share count. The Street would have been happy if it was somewhere around Rs 25,000 crore plus. Considering they had 50 billion rupees of net cash, people expected a much bigger buyback. This is not going to move the action needle now.
What do you think of the TCS numbers? If you remove the exceptional item, the net profit number is ahead of the estimate and the deals won look very healthy too.
There is a clear rate of income. We were seeing a 2.5% CC growth and it has come to a 4.5% CC growth and the dollar growth rate of 6.9%. Therefore, there is a very strong rebound in terms of growth. We expected margins of 25%, it has reached 26.2%. So even the adjusted PAT is way ahead of the estimate. I think there will be a further improvement in the stock. It is currently 27 times two years ahead, so several updates have already been made. In the past three months, the stock has risen nearly 20%. We also have to take that into account. Overall, it has been a solid set of numbers with solid margin execution.
Wage increases are also back and that indicates confidence, but we have to see it as a headwind for the next quarter in terms of margins because wage inflation is back. . that in the context of the Covid crisis, it’s not a huge decline.
Would you raise your price targets based on these gains?
There may be a 5-7% revision because we have already updated it a bit. That being said, we need to see what the Q3, Q4 margins will be like because the currency is appreciating and there are also wage increases. Internally, there is a strong rebound in growth across all B2C verticals like retail and BFSI, where the Covid-led transformation is accelerating. Vendor consolidation could have worked in favor of larger vendors like TCS because this is a strong rebound after a soft first quarter. Even the full-year figures are likely to be flat.
Are we going to see more buybacks in the IT package? Wipro has also announced one, will Infosys do the same?
Anyway, Wipro was expected to announce a buyback because it has not been paying dividends and uses the buyback route. For Wipro, we are looking for a buyback of Rs 12,000 crore at least, probably more than that because Wipro also has Rs 30,000 crore of net cash. I expect a buyback on HCL in December because most of the cash flows from the IBM acquisition are behind them. As for Infosys, it depends on your choice. Infosys has broad institutional ownership and relies on the dividend-buyback tax advantage. So I wouldn’t comment on Infosys. But Wipro sure and HCL around December.
Do you see an increase in deals after the US presidential election?
There are many vendor consolidation and transformation deals in the works, so deal closings may increase. Big deals like Infosys Vanguard or the couple of deals TCS previously had on the insurance platform moved the lever for top tier IT companies.
.
