Tech giant TCS will consider second interim dividend on 10 Oct. What to expect in Q2FY23?

Last week, on Friday, in its regulatory filing, TCS said, we hereby inform you that a meeting of the Board of Directors of Tata Consultancy Services is scheduled to be held on Monday, October 10, 2022.”

During the October 10 meeting, TCS said the board will approve and take on record the audited standalone and consolidated financial results of the company under Indian Accounting Standards for the quarter and six-month period ending September 30, 2022.

Also, TCS said, the board will “consider declaration of second interim dividend to the equity shareholders.”

“The second interim dividend, if declared, shall be paid to the equity shareholders of the company whose names appear on the Register of Members of the company or in the records of the Depositories as beneficial owners of the shares as on Tuesday, October 18, 2022, which is the Record Date fixed for this purpose,” TCS said in its filing.

Dividends are referred to as incentives that a listed company distributes to its existing shareholders from its profits.

In Q1FY23, TCS paid the first interim dividend of ₹8 per Equity Share for the current financial year. The total equity dividend percentage stood at 800% for the June 2022 quarter.

In the previous fiscal year FY22, TCS paid a total dividend of ₹43 per equity share. The company’s shareholders pay-out stood at ₹38,010 crore up by 12.2% yoy. The pay-out included dividend (including unpaid dividend), buyback, and taxes.

For the first quarter of FY23, TCS garnered a consolidated revenue of ₹52,758 crore versus ₹45,411 crore in Q1FY22. Constant currency revenue growth is at 15% yoy. PAT stood at ₹ ₹9,478 crore up from ₹9,008 crore in Q1FY22. In Q1FY23, the company’s net margin stood at 18%. While its operating margin dipped 2.4% yoy to 23.1% in the quarter.

On September 30, TCS shares closed at ₹3,004.60 apiece marginally up on BSE. TCS is the second most valued company in terms of market share. Currently, its market valuation is around ₹10,99,398.58 crore.

What to expect in Q2FY23 from TCS?

In its Q2 preview report for IT sector dated September 29, Kotak Institutional Equities analysts Kawaljeet Saluja and Sathishkumar S said, “We forecast solid sequential revenue growth of 3.1%, driven by seasonal strength and growth in digital services, led by cloud. Cross- currency headwinds of 220 bps qoq and 540 bps yoy will be extremely high. EBIT margin will increase from lows of June 2022 quarter, led by the absorption of wage revision rolled out in the earlier quarter. However, multiple margin headwinds do exist with high attrition and an increase in travel and discretionary expenses.”

Further, the analysts added, “We expect moderate growth in TCV yoy. We expect the number to be in the range of US$8-8.5 bn. The focus on furloughs for the December 2022 quarter will be high. Industry escaped this impact in the last two years due to aggressive client spending and large deal ramp-up.”

According to the analysts’ report, expect investors to focus on:

-areas of spending caution and pullback by clients,

– segments/verticals exhibiting weak spending pattern,

– how will the current slowdown and potentially even recession differ from the past,

– large deal momentum, especially in consolidation deals, outcome from push by companies to get rate increases, attrition rate, especially onsite, and

– levers to defend margins in light of continued wage inflation and little leverage from pricing.

Kotak Institutional Equities analysts have given an ‘ADD’ recommendation on TCS stock. They have set a target of ₹3,400 for this IT giant.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.