TCS expects biz to return to normal by Q3; defers increments

The country's largest information technology (IT) services exporter Tata Consultancy Services expects the Covid-19 crisis to impact business on similar lines as  the global financial crisis of 2008. The company also expects the demand situation to return to normal by the third quarter of the current financial year.

The Mumbai headquartered company on Thursday reported a 5.1% rise in revenues at Rs 39,946 crore during the fourth quarter of 2019-2020 ended March, compared with Rs 38,010 crore during the same period in the previous year.

However, the company's net income fell by 7% below analyst expectations to Rs 8,093 crore during Q4 of FY20 as compared to Rs 8,152 crore during the same quarter of FY 19.

CEO Rajesh Gopinathan said that the Covid-19 crisis had marginal impact during the fourth quarter as the lockdown started in North America and Europe only during the last two weeks of March. 

These two markets account for three-quarters of Indian IT companies' revenue.

"The financial crisis impacted the financial sector more but now it is broad-based with the lockdown having a cascading impact on the economies. We see a broad spectrum of customers from extremely stressed to relatively stable. Despite the near term challenges, our long-term outlook remains stable," said Gopinathan.

The Tata Group company reported a growth of 7.2% in full-year revenues for FY20 at Rs 1,56,949 crore as compared with Rs 1,46,463 crore during the previous fiscal. The company's net income also grew 2.8% in FY 20 at Rs 32,447 crore as against Rs 31,562 crore it had reported for full-year FY19. 

The company crossed the $22 billion revenue landmark during the financial year.

TCS said that while there will be deal negotiations and spending cuts, it has also seen an accelerated demand for cloud migration and digital workplace solutions as consumers wanted business continuity.

While TCS said that it will honour all the 45,000 campus offer letters, the company has deferred the increments for employees till it has greater visibility. 

However, the company, which employs around 4,50,000 employees globally, will give promotions depending on the performance of the respective business units. It had added 24,000 employees during the year after attrition.

TCS said that its total contract value for Q4 stood at $8.9 billion, while the operating margin was flat at 24.6%, still the highest among its peers. It has also added 49 new customers with over $100 million in deal value.

“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. 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," Gopinathan said.

According to TCS, organisations across the world are realising the need for operational and systems resilience with many of the large deals it signed during the quarter addressing that need while making customers’ operations leaner, faster, and more resilient.

The agility, resilience and adaptability of our operating model were put to the test, and it has emerged stronger. Many of them have expressed their appreciation and gratitude for how our teams went above and beyond to help them keep their businesses running under very difficult circumstances," Gopinathan added in the statement. TCS has enabled work from home for over 90% of its employees, it said.

Yesterday, the country's third-largest IT firm Wipro had Q1 earnings guidance on concerns of Covid-19 impact even as it reported 0.7% impact during the March quarter revenue.

The country's second-largest IT firm Infosys will report Q4 and full-year earnings next Monday.

Last week, Cognizant withdrew its earnings guidance for 2020 on account of the unpredictable and unprecedented business environment it anticipates this year due to the pandemic.

As the Covid-19 crisis deepens, the IT services sector is preparing for a bleak FY21 earnings even as the companies refrain from providing any guidance.