TCS Q2 Results Today: Share buyback, 5 other monitorables for Dalal Street & trading strategy

Tata Consultancy Services (TCS) will announce its second-quarter earnings after market hours on Wednesday. While the performance scorecard will be closely watched, investor interest will be more in the share buyback program.

On October 6, the software major said that its board of directors will consider and approve a plan to buy back shares of the company.

Following the news, the stock hit an 18-month high of Rs 3,679 the next day.


Given that the global macroeconomic situation remains uncertain, posing risks to growth, the only silver lining for Dalal Street investors is the share buyback.

ETMarkets has, therefore, drawn down the key monitorables for investors in the September quarter results of TCS.

Share Buyback
If the board approves, then this will be the fifth time TCS will be conducting a share buyback program.

In January 2022, TCS had bought back shares worth Rs 18,000 crore through the tender offer route. Then the company had offered to buyback the shares at Rs 4,500 apiece.

This time also, analysts expect the company to announce a share buyback of a similar size.

Core Earnings
For the September quarter, which is traditionally strong for the sector, TCS is seen reporting a mere 1.4% sequential growth in consolidated revenue to Rs 60,218 crore, according to the average of estimates by eight brokerage firms. But on a year-on-year (YoY) basis, the topline is seen rising nearly 9%.

Consolidated net profit is seen rising 3% sequentially and over 9% YoY to Rs 11,404 crore in the quarter, the estimates showed.
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“We expect TCS to post a low single-digit growth in revenue sequentially as slowdown in the IT sector due to adverse macroeconomic conditions in the last two quarters persists. Although the quarter saw huge deal wins, its reflection in the profitability of the company will be delayed,” said Dhruv Mudaraddi, research analyst, Stoxbox.

Discretionary spending on IT services has seen a slowdown, but analysts expect deal momentum for TCS to continue. Kotak Institutional Equities expects deal wins worth $12 billion, a YoY growth of 48%.

While revenue growth is likely to have been muted, operational performance is seen better, aided by normalisation in wage hike cost impact and visa costs.

Analysts expect TCS’ operating margin, calculated as earnings before interest and taxes (EBIT) to expand 30-90 basis points sequentially from 23.2%.

Monitorables
Eventhough recession fears in the US have ebbed, interest rates are expected to be higher for longer as inflation remains a cause of worry.

TCS had said that double-digit earnings growth in FY24 would be a tall ask. So, investors would look for any change in the management tone or view on the demand environment.

Besides this, margin trajectory for the rest of the year and levers available to sustain profitability will also be eyed.

Trading Strategy
From the lows of Rs 3,040 touched in April, TCS stock has seen a rally to its 52-week high of Rs 3,679.

During this upward move, the stock has made a “Higher Top Higher Bottom” pattern on technical charts.

“The stock has faced resistance at its previous high at around Rs 3,680, so from here, we can expect some profit booking till Rs 3,550-3,500 odd levels,” said Viral Chheda, senior technical analyst, SSJ Finance & Securities.

So, the strategy would be to wait for some correction and buy at dips of Rs 3,500 with a stop loss of Rs 3,300 on a weekly closing basis, Chheda said, adding that one can expect the stock to test Rs 3,800-4,000 in the next 4-6 months.

If one looks at the historical performance of TCS shares post the earnings, then the stock has given negative returns five times in the last seven quarters.