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    Covid disruption shaves 21% off TCS dollar profit in Q1

    Synopsis

    Revenue from the UK dropped 8.5 per cent due to the double impact of Covid-19 and Brexit.

    TCS
    TCS said the Trump administration move to suspend H-1B visas till the year-end would impact its business.
    Mumbai | Bengaluru: Tata Consultancy Services said its dollar profit dropped 20.8 per cent to $925 million and revenue by 6.3 per cent to $5.06 billion in the first quarter of FY21 owing to disruption caused by the pandemic in its main markets of the US and Europe. Analysts predicted more pain ahead for India’s largest software exporter.

    In rupee terms, TCS recorded a 13.8 per cent dip in profit at Rs 7,008 crore while revenue rose 0.4 per cent to Rs 38,322 crore in the quarter ended June. It declared a dividend of 5 per share.

    CEO Rajesh Gopinathan said customers in banking and financial services, as also retail, had pulled back on projects. However, he said, the impact of Covid-19 on TCS revenue “has bottomed out”.

    “The revenue impact of the pandemic played out broadly along the lines we had anticipated at the start of the quarter. It affected all verticals, with the exception of life sciences and healthcare, with varying levels of impact,” Gopinathan said in a statement.
    TCS-graph

    “We believe it has bottomed out, and we should now start tracing our path to growth,” Gopinathan said.

    The TCS stock closed down 0.6 per cent at Rs 2204.35 on the BSE Thursday, while the benchmark Sensex closed in the green — up 1.12 per cent at 36,737.69 points. The results were announced after market hours.

    Business from customers in the US, TCS’ main market, dropped 6.1 per cent due to the pandemic. Revenue from the UK dropped 8.5 per cent due to the double impact of Covid-19 and Brexit.

    Retail business was the worst hit with a drop of 12.9 per cent followed by banking and financial services, the biggest vertical for TCS, which dropped 4.9 per cent in the quarter.

    Analysts warned the numbers could get worse, while pointing out that TCS’ performance in the quarter was below street expectations.

    “(The results) missed on all fronts with steep margin miss weighing on profits,” said Madhu Babu, IT analyst with brokerage Centrum. The brokerage had expected revenue to drop by 5.5 per cent and operating margins of 24.6 per cent as against the 23.6 per cent announced by the company.

    Sanjeev Hota, head of research, Sharekhan by BNP Paribas, said: “TCS disappointed with below-than-expected performance in both revenue and margin, while deal wins and operating cash flow (OCF) remained strong.”

    VOLUNTARY ATTRITION
    The company closed the quarter with a headcount of 443,676 employees, down by 4,788 people. Milind Lakkad, global head of HR at TCS, attributed this to “voluntary attrition”.

    Experts feel there could be more trouble ahead for the software services major. “TCS has nearly 40 per cent exposure to BFSI, and that segment is also impacted. The Covid-19 situation in the US is not showing signs of improvement (yet),” said DD Mishra, research director, Gartner. He reckons “the worst is yet to come” with “TCS profitability (likely) to remain under pressure for the next two quarters”.

    The software major, however, snagged deals worth $6.9 billion, a 20 per cent jump over the same period last year. It also took on several hundred employees on its rolls from clients. Its life sciences and healthcare business proved to be the outlier as business from pharma companies grew 13.8 per cent. “There is definitely flight to quality in the customer universe and we are participating (in deals),” said N Ganapathy Subramaniam, chief operating officer at TCS.

    Information Services Group (ISG), a global advisory, said on Wednesday that outsourcing deals worldwide had declined in the quarter ended June by 5 per cent to $13.2 billion — largely in the banking and financial services verticals — due to the impact of the Covid-19 pandemic.

    Gopinathan said the company is seeing the most deals for cloud migration, digital projects as well as providing cyber security. “BFSI should start recovering from this quarter onwards, especially in the European market. US banking will see revival from next quarter. Other industries such as manufacturing will see recovery from the third and fourth quarters,” he said.

    TCS said the Trump administration move to suspend H-1B visas till the year-end would impact its business.

    “The proclamation by the US President is unfortunate and unfair. There would be a short-term impact on business,” said Lakkad. “It will have implications on technology development in the US and also cause enormous amount of uncertainty to (our) associates.”

    TCS is the first IT services company to declare results. Smaller rival Wipro, which saw its first non-India CEO Thierry Delaporte take over as CEO this week, will report numbers on July 14 followed by Infosys on July 15 and HCL Technologies on July 17.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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