TCS Q1 net profit declines 14% YoY to ₹7,008 crore
ACTION PLAN The firm expects a gradual recovery, driven by growth in Europe
BENGALURU: Tata Consultancy Services Ltd (TCS) reported a 13.8% drop in fiscal-first quarter profit from a year earlier, missing analysts’ estimates, as clients cut spending amid the coronavirus pandemic. TCS, however, said it expected a gradual recovery from the crisis, driven by growth in Europe.
The deal pipeline is strong amid market share gains and the recovery trajectory will be faster than what was seen during the global financial crisis, said Rajesh Gopinathan, chief executive and managing director of TCS.
Net profit declined by 13% from the preceding March quarter to ₹7,008 crore. That compares with a 5% decline estimated by analysts. The company reported a profit of ₹8,131 crore in the year earlier June quarter.
Revenue declined 6.3% from a year earlier in constant currency terms to ₹38,322 crore. The company reported deal wins worth $6.9 billion in the June quarter, including large deals in digital infrastructure and smaller deals in the security infrastructure space. In the preceding three months, TCS reported its strongest ever quarterly order book at $8.9 billion.
“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. We believe it has bottomed out, and we should now start tracing our path to growth,” said Gopinathan.
Gopinathan said the recent
H1-B visa suspension by the US government was “unfortunate” although TCS is well-positioned to manage the challenges with its location-independent model.
Operating margin for the June quarter narrowed to 23.6% from 24.6% in the January to March quarter. However, the company managed to limit the impact on margins with “tight financial management of ancillary expenses”, Gopinathan said.
TCS said it is seeing increased traction in its location-independent way of working.
“Our customers are quite comfortable integrating the remote workforce, using new collaborative technologies to get work done. Our secure borderless workspaces model has been institutionalised. We have been able to seamlessly adapt and extend it to prospect for new business, sell, contract and execute programmes,” said N Ganapathy Subramaniam, chief operating officer of TCS.
Barring Europe and Latin America, which grew 2.7% and 0.2% from a year earlier in constant currency terms, respectively, growth declined in all other markets. North America, which contributes about half to the company’s revenue, declined 6.1%. The UK, India, Asia Pacific and Middle East and Africa declined 8.5%, 27.6%, 3.2%, and 11.7%, respectively.
In terms of business segments, life sciences and healthcare continued to grow strongly at 13.8% from a year earlier.
Other than that, all other industry verticals reported declines. Banking, financial services and insurance sector declined 4.9%; retail and consumer packaged goods (-12.9%); communications and media (-3.6%); manufacturing (-7.1%); and technology and services (-4%). The number of employees at TCS declined by 4,788 to 443,676 as of June 30.
The number of employees at TCS declined by 4,788 to 443,676 as of June 30. Milind Lakkad, global head of human resources, attributed the decline to “voluntary attrition”.