TCS Move Marks Positive Sign For IT Sector

Tata Consultancy Services (TCS) is not allowing a global pandemic to change its plans to return some cash to its shareholders—and more tech firms could soon follow suit.

Headquartered in Mumbai, Maharashtra, India, TCS is an IT services, consulting, and business solutions organization in operation for more than 50 years. A subsidiary of the Tata Group, TCS operates in 149 locations across 46 countries, and it is the second largest Indian company by market capitalization. It just revealed its Q2 2020-21 results, showing strong revenue growth and margin expansion, and the company generated consolidated revenues of $22 billion in the fiscal year ending March 31, 2020.

In July, TCS launched IUX for Workplace Resilience, a business command center solution that helps companies make it safe for employees returning to work amid COVID-19 and for the customers doing business with them. It also partnered with Zinier on a digital solution to help field service organizations adapt to unexpected disruptions to essential workforces and services.

TCS also has a policy of returning 80-100% of its free cash. With that in mind, it announced that its board has approved a proposal to buy back up to Rs 16,000 crore worth of shares to stakeholders, repurchasing 5.33 crore shares, or 1.42% of the total paid-up equity, at Rs 3,000 apiece.

This is the third buyback by the company in four years, and the first by an IT firm this year. TCS had previously made buybacks worth around Rs 16,000 crore each in 2017 and 2018, with both buybacks conducted at a premium to the company’s market value.

Since word came that the company was considering the buyback, TCS shares have risen almost 6% on the BSE. The buyback is also positive development for the IT sector, and other companies could soon move in the same direction, said Jyoti Roy, Equity Strategist at Angel Broking, because “most IT companies have large surplus cash on books which can be used to reward shareholders either in the form of dividends or buybacks.”