TCS: A Gem in Tata’s Crown

Tata Consultancy Services (TCS) announced its second quarter financial results for FY21 on 7th October, Wednesday. The robust numbers showed operational strength and management efficiency. It reported industry leading operating margin of 26.2% and 3% increase in Year-on-Year revenue in Rupee terms; net margin stood at 21%

IT industry in general has shown resilience in the last two quarters and has been one of the net gainers in the times of pandemic. Web retailing, and banking and financial services (contributing 46.6% to company revenue) have been adding more consumers and all this has resulted in an improved top line for companies like TCS.

Services Lines Commentary

The economy is not yet out of the woods and the company press release concurred with the sentiment. It noted that, “COVID pandemic continues to impact businesses. However, we see a clear surge in future-focused discretionary investments for growth & transformation.” The commentary on recovery calmed investors sitting on the fence. Strong, broad-based rebound across industry verticals & geographies is being led by Cloud & Security, Analytics and Cognitive Business Operations.

Human Resource and Diversity

1. Consolidated headcount: 453,540 | Net addition: 9,864 | Women in the workforce: 36.4%

2. Already a global benchmark, IT Services attrition rate hits an all-time low at 8.9% (Last twelve months)

3. Employees from 147 nationalities make it one of the most diverse organizations.

In another exception to the norm, TCS announced salary hike for its entire workforce. “The salary increase will be across all bands of employees and it (the quantum) will be similar to what we had done in the past,” said Milind Lakkad, chief human resources officer at the Tata Group company.

Capital Account

1. Interim Dividend has been approved by the board at ₹12.00 per share. Record date has been fixed as 15th October 2020 and payment date as 03rd November 2020.

2. The Board has approved a proposal to buy back up to 5,33,33,333 equity shares of TCS, being 1.42% of the total paid up equity share capital, at ₹3,000 per equity share for an aggregate amount not exceeding ₹16,000 crore.

Tata Sons Private Limited holds 72.02% shares in TCS as on 30th September and as the promoter stands to gain the biggest chunk of buy back bonanza. It will help Tata Sons to re-capitalize some of the companies under its umbrella and prepare a war chest for any contingencies in the upcoming quarters. Buybacks are seen as counter productive. It is seen as a tactic by companies to inflate future earning per share and is also a way for promoters to draw funds from company coffers.