TCS sees coronavirus hit in Q1, expects recovery in Q3

Top IT services provider to honour 40,000 campus offers. Assures employees of no retrenchment.

Reuters
TCS won orders worth $8.9 billion in the quarter to December as clients wanted it help transform their businesses and shift applications to the Cloud.
MUMBAI: India’s top IT services provider, Tata Consultancy Services, said disruption in its business will peak in the quarter to June following the Covid-19 virus outbreak that has roiled companies worldwide, with several key IT clients, especially in the travel and hospitality sectors, severely impacted over the last two months.

The $22-billion software services leader said it remained hopeful of demand recovery in the third quarter of the ongoing fiscal year as clients invest in technology to rebuild businesses following what is expected to a major slump in its key market, United States.

“The impact (of the Covid-19 pandemic) is comparable to the global financial crisis (of 2008). Its peak impact will be in the coming quarter. It is difficult to predict Q1,” TCS CEO Rajesh Gopinathan told reporters after announcing its fourth quarter results for financial year 2020.


“The scenarios we have modelled, the worst case, we should be able to grow from Q3 FY21. If you were to do that…we will defend the exit rate of Q4 FY21 similar to Q4 FY20,” he added.

TCS grew 7.1% to $22.03 billion in the just concluded fiscal year, lower than projected earlier as banking clients in the United States spent less due to business uncertainty.

Operating margins in the fourth quarter stood at 25.1%, a marginal 7 basis point increase on a quarter-on-quarter basis.
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Gopinathan said while there was short-term volatility, its long-term profitability goal remained unchanged at 26-28%.

TCS contributes to 15% of India’s software exports of $147 billion.

In the quarter to March, TCS hired 24,179 people to take its total headcount to 448,464.

The company will honour all the 40,000 campus offers it made during the year and assured existing employees it would not lay off staff. However, there would be no increments this year. The company has also frozen hiring till there is improvement in business visibility.
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“We are in the midst of a storm, no doubt about it. The storm is going to get a lot worse before it gets better,” said Gopinathan. “Our commitment to all stakeholders is that we are confident that we have a good ship and crew.”

TCS joins rivals Wipro, Cognizant and Accenture to warn investors that business would be impacted in the short term due to the pandemic, which has paralysed its main markets -- the US, Europe and India.
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“Unlike the global financial crisis, the impact (due to the outbreak) is much more broad based… the impact has very rapidly cascaded to a lot more verticals,” said Gopinathan. “There is not much to pick and choose in terms of the impact”.

On Wednesday, Wipro skipped its Q1 revenue guidance for the first time in two decades, forecasting that clients would cut technology budgets, demand price cuts and restructure contracts. TCS’ smaller rival Infosys is expected to announce its results on April 20.

“Going into the quarter, there will be some customers who will ask for deferred payments which we are seeing. So far, we are not seeing any threat to eventual collections and we have to see how to manage the situation without hurting ourselves,” said V Ramakrishnan, chief financial officer of TCS.

TCS won orders worth $8.9 billion in the quarter to December as clients wanted it help transform their businesses and shift applications to the Cloud.

The company had cash reserves of $4.5 billion as of March 31.

In rupee terms, TCS reported a 1% decline in fourth quarter profit to Rs 8,049 crore, while revenue grew by 5% to Rs 39,946 crore, lower than street expectations.

For fiscal year 2020, it reported a profit of Rs 32,340 crore on revenue of Rs 156,949 crore.

It declared a final dividend of Rs 6 per share.
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