TCS Q4 Results: Profit, Revenue Flat As Covid-19 Negates Deal Wins
Tata Consultancy Services Ltd.’s quarterly profit met analysts’ estimates even as the Covid-19 pandemic stalled economic activities and spending across the globe.
Net profit fell 0.8 percent sequentially to Rs 8,049 crore in the quarter ended March, the software services exporter said in an exchange filing. Analysts’ estimates compiled by BloombergQuint had pegged the bottom line at Rs 8,219 crore.
- Revenue rose 0.2 percent quarter-on-quarter to Rs 39,946 crore—slightly lower than the Rs 40,379 crore estimate.
- Dollar revenue fell 2.5 percent to $5,444 million.
- Operating profit rose 0.5 percent to Rs 10,025 crore.
- Margin expanded 10 basis points to 25.1 percent.
TCS benefited from the depreciation of the rupee—as it charges most of its clients in U.S. dollars—and lower variable compensation paid to employees. Still, those gains were offset by the loss of billings due to the lockdowns in India and other developed markets to contain the spread of coronavirus.
“The pandemic completely reversed the positive momentum that we had started seeing in some of our biggest verticals in the first half of the quarter,” TCS CEO Rajesh Gopinathan said in a statement. “On the positive side, we had very strong deal closures during the quarter.”
In fact, our order book this quarter is the largest ever, from the time we started reporting the metric.Rajesh Gopinathan, CEO, Tata Consultancy Services
TCS added five new clients in the $100-million-plus band over last year, taking the total such customers to 49. The company also added six new clients in the $50-million-plus band and 25 new clients in the $20-million-plus band.
The pandemic has led to disruption in work in India, some European countries and the U.S., impacting revenue. For the Indian IT sector, the outlook for 2020-21 is “hazy” as Covid-19 may cause a decline in global spending, Kotak Institutional Equities said in a pre-earnings report.
TCS itself expects revenue to contract in 2020-21, Gopinathan said. “We expect a return to normalcy in Q3 FY21,” he said, adding that Q4 FY21 will be similar to the recently-concluded one. The impact of Covid-19 on TCS will be similar to the global financial crisis of 2008, he noted.
Revenue from all regions, except India, rose for TCS. The biggest growth was seen in Europe where revenue growth was at 12 percent over last year. For the U.K., the growth was at 5.4 percent while it remained largely flat in North America.
More Pain Ahead
The full impact of the coronavirus lockdowns is yet to be seen. According to Bank of America-Merrill Lynch, things are likely to be worse as lockdowns and economic uncertainty translate into reduced client spending. Travel and hospitality are expected to be severely impacted because of the virus, it said.
TCS acknowledges that near-term challenge. “We’re going to see a contraction in terms of demand in the near term. We cannot predict how demand will pan out in the short term.” V Ramakrishnan, chief financial officer of TCS, said. “Internally though, we are on a good wicket when it comes to utilisation.”
The company’s clients too have been anxious due to the widespread economic impact of Covid-19, TCS said.
“We’re in the midst of a fairly challenging time. There are some extremely stressed clients,” Gopinathan said. “We are dealing with clients on a case-to-case basis. In many cases we are repurposing teams and refocussing on areas that need to be addressed.”
Watch | Management Commentary, Analyst Reactions On TCS Q4 Results
Boon For Digital?
Still, TCS remains optimistic that the current crisis will yield some positive results. The company expects a higher rate of digital technology adoption stemming from the crisis. “The crisis is going to accelerate applications of digital services including cloud and automation,” Gopinathan said.
Besides, the company said that its long-term profitability target of keeping margin between 24-26 percent is “unshaken”. Promotions will continue while the company has decided not to dole out salary increments as of now.
“We are in the midst of a storm. The storm is going to get a lot worse before it gets better,” Gopinathan said. “But it will get better. We’re confident that we have a good ship and a good crew.”