The TCS buyback quantum is a little lower than what the market was anticipating. The Rs 16,000-crore buyback with the pricing at Rs 3,000 is quite interesting. What is your view?
The quantum is lower and will not move the lever in a big way. It will not even be 1.7% of equity.
The market was wondering if this buyback was to try and raise money for Shapoorji Pallonji but that does not seem to be the case.
It is actually just 1.5% of the equity count. The Street would have been happy if it was somewhere around Rs 25,000 crore plus. Considering they had Rs 50,000 crore of net cash, people were expecting a much larger buyback. This is not going to move the needle for the stock now.
What do you make of the TCS numbers? If you take away the exceptional item, the net profit number is ahead of estimate and deal wins are also looking very healthy.
There is a clear revenue beat. We were looking at 2.5% kind of CC growth and it has come at 4.5% CC growth and 6.9% kind of dollar growth. So there is a very strong rebound in terms of growth. We were expecting margins at 25%, it has come in at 26.2%. So even adjusted PAT is very ahead of estimate. I think there will be a further upgrade in the stock. It is currently at 27 times two years forward so multiple upgrades have already been happening. In the last three months, the stock is up almost 20%. We have to also take that into consideration. Overall, it has been a strong set of numbers with strong margin execution.
Wage hikes are also back and that indicates confidence but that we have to see as a headwind for the next quarter in terms of margins because wage inflation is back.In light of this quarter’s performance, full year TCS will most likely see only 1% decline. which in the context of the Covid crisis, is hardly a big decline.
Would you raise your price targets on the basis of these earnings?
There might be a 5-7% revision because we have already upgraded it a bit. Having said that, we need to see how 3Q, 4Q margins will be because the currency is appreciating and there are wage hikes as well. Internally, there is a strong bounce-back in growth in all the B2C verticals like retail and BFSI where the Covid-led transformation is accelerating. The vendor consolidation could have worked in favour of larger vendors like TCS because this is a steep bounce back after a soft first quarter. Even the full year numbers are likely to be flattish.
Are we going to see more buybacks happening in the IT pack? Wipro too has announced one, will Infosys follow suit?
Wipro anyways was expected to announce a buyback because it has not been paying dividend and it uses the buyback route. For Wipro, we are looking at a Rs 12,000-crore buyback at least, probably more than that because Wipro also has Rs 30,000 crore of net cash. I am expecting a buyback at HCL in December because the big part of cashflows from IBM acquisition is behind them. As for Infosys, it depends on its choice. Infosys has a wide institutional shareholding and it depends on the tax advantage between dividend and buyback. So I would not comment on Infosys. But Wipro for sure and HCL around December.
Do you see a bump-up in deals post the US presidential election?
A lot of transformational deals and vendor consolidation are in pipeline and so deal closures can increase. Big deals like Infosys Vanguard or the couple of deals TCS earlier had on the insurance platform moved the lever for the tier I IT companies.