TCS Q1 profit dips by 14% as Covid-19 hits business, CEO Gopinathan expects revenue to recover by Q3

Mumbai based information technology (IT) services provider Tata Consultancy Services (TCS) on Thursday reported a 13.8% decrease in quarterly profit in the first quarter of FY 2020-21 as the Covid-19 pandemic eroded revenue across verticals. 

CEO Rajesh Gopinathan said that the impact has been broadly along expected lines and the company’s revenue will be back to pre-Covid-19 levels by the third quarter, as Europe has been ahead in recovery and has seen good traction in June.

TCS saw its net income fall to Rs 7,008 crore in the quarter ended June 2020, from Rs 8,131 crore, a year earlier. 

The country’s largest software exporter posted a marginal increase of 0.4% in revenue to Rs 38,322 crore. The rise in rupee income is attributable to the devaluation of the currency vis-a-vis the dollar.

In constant currency terms, revenue declined by 6.3%. The company also saw its operating margin decreased by 0.5% to 23.6%, as the topline decline cost the company its bargaining power.

TCS saw a total contract value of $6.9 billion in deal wins, a growth of 205 over the corresponding quarter of the previous financial year. The company also saw its life sciences vertical posting a growth of 14% year-on-year during the quarter.

"Covid-19 has affected all verticals, with the exception of life sciences and healthcare, with varying levels of impact. We believe it has bottomed out, and after an initial period of disruption, customers have now stabilised their operations, focussing on front-end transformation, resulting in significant traction for our products and services,” Gopinathan said in a statement.

He added that the global economy is recovering faster during the current recession as compared to the financial crisis of 2008-09 owing to early government response as well as larger economic relief packages.

Read: Revenue of IT services firms may drop upto 15% in June quarter: Analysts

TCS said that it has signed several large core digital transformation programmes encompassing operations, applications, cloud and cybersecurity with four new $100 million client additions during the quarter.

Gopinathan said that the banking, financial services and insurance (BFSI) sector, which contributes to 35% of the IT industry revenue, has been resilient during the pandemic and will recover sooner than expected while non-grocery retail, travel, hospitality will take up to one year to bounce back to pre-Covid-19 levels. 

BFSI declined by 4.9% during the quarter, while retail decreased by 13% and manufacturing by 7% compared to the same period last year.

Europe, which contributes to around one-fourth of industry sales, delivered a 2.7% growth for TCS, owing to market share gains. The United States, which contributes to about 50% of the industry revenue, showed a decline of 6%.

“The US market is one of the most resilient and innovative markets. We have seen multiple instances of customers coming up with innovations like kerbside pickups, the supply chain had to be reconfigured according to demand patterns,” Gopinathan said, adding that the country will return to pre-Covid-19 levels by the fourth quarter.

In May, TCS said its top executives have taken pay cuts for the financial year 2020 as it braced for the impact of the pandemic. Gopinathan took home Rs 13.38 crore for FY 20, as compared with Rs 16 crore that he received during FY 19, a decline of 16% year over year. 

For the fourth quarter of 2019-2020 ended March, TCS reported a 5.1% rise in revenues at Rs 39,946 crore, compared with Rs 38,010 crore during the same period in the previous year. The company had also deferred increments for all employees.