TCS, one of India’s leading IT companies, is reportedly set to announce a share buyback proposal alongside its quarterly results, according to Jefferies. This follows TCS’s buyback worth Rs 18,000 crore in 2020. Other IT companies, such as Wipro, are also engaging in share buybacks. However, Jefferies predicts that IT companies may experience a decline in revenue and margins due to wage hikes.
TCS is expected to reveal its share buyback proposal as part of its quarterly results, possibly following in the footsteps of its buyback program last year. The buyback in 2020 amounted to about 1.08% of TCS’s equity share capital, with an estimated value of Rs 18,000 crore.
Meanwhile, Wipro recently announced its own buyback plan, aiming to repurchase 26.97 crore shares from its shareholders on a proportionate basis through a tender offer. The buyback price was set at Rs 445 per share, totaling Rs 12,000 crore, which represents approximately 5.72% of its market capitalization. Retail investors have the opportunity to reserve 15% or 4 crore shares in the buyback, with a fixed retail entitlement ratio at 23.5%, while other investors have a fixed entitlement ratio of 4.3%.
As the first quarter earnings season approaches, TCS and HCL Tech are expected to be the first to announce their results on July 12, followed by Infosys on July 20. Jefferies anticipates a 0.3% quarter-on-quarter decline in aggregate revenue in constant currency terms, with Coforge and HCL Tech leading in terms of growth. However, Jefferies also predicts a contraction of 75 basis points in aggregate margins due to wage hikes, specifically a significant 150-190 basis point margin contraction for TCS, TechM, and Coforge.
The brokerage firm further expresses concerns that Infosys may lower the upper end of its guidance by 100 basis points to a 6% year-on-year constant currency growth. Additionally, Jefferies expects TCS to announce a share buyback and highlights that the focus during this earnings season will be on various factors such as guidance, demand outlook, leadership transitions, nature of deals, and deal cycles.
On the other hand, Motilal Oswal predicts a cumulative 5.3% year-on-year growth in revenue for IT companies under its coverage for the June quarter, with a minimal 0.4% sequential growth. However, they estimate aggregate profits to drop by nearly 2% compared to the previous quarter.
IT companies have been grappling with weak earnings in recent quarters and have provided lower-than-expected forecasts for the coming quarters. For instance, Infosys has guided for a relatively modest 4-7% growth for the fiscal year 2024 amid an uncertain global environment.
In conclusion, TCS is anticipated to unveil a share buyback proposal alongside its quarterly results, reflecting a trend among IT companies in India. However, there are concerns regarding potential declines in revenue and margins due to wage hikes. The upcoming earnings season will shed light on the performance and outlook of various IT firms, prompting investors and analysts to closely examine guidance, demand prospects, and other key factors.
