MUMBAI: India’s largest IT services company Tata Consultancy Services will announce its March quarter results on Thursday. Rival Wipro on Wednesday reported 6% YoY fall in profit for the quarter and refrained from providing revenue guidance for the June quarter due to the volatile environment in light of the coronavirus pandemic. Wipro has cited concerns over clients' demands with some deferring payments and others seeking discounts. The Indian IT market is price sensitive and amid economic uncertainty, a company that can still attract some price premium might just give the market confidence.
The top insights to watch out for from TCS' earnings today:
Brokerage firm IDBI Capital in a recent report said it expects slowdown in IT spend on account of Covid-19 pandemic to impact TCS, like Accenture, "given its presence in the US (almost 50% of revenue) and in verticals like retail & CPG, manufacturing, technology & services and regional markets & others (collective revenue share of almost 54%) and Banking financial services and Insurance (BFSI) especially large banking clients (30.4% revenue share)". However, the full impact is likely to be felt in first quarter of FY21 and might make a dent in TCS’ traditionally strong numbers for the first half of the year. The deal win momentum that TCS has been reporting is less likely to be impacted with most of the global lockdown kicking in around March.
BFSI is the largest business for TCS and its top clients are spread across North America, the UK and Europe. Commentary will be expected on how clients are reacting to work from home requirements, security concerns and the cascading effect on IT budgets. Other important verticals like retail and manufacturing are also facing challenges whereas TCS had been upbeat about its healthcare and life sciences verticals lately and in the backdrop of the pandemic, the progress from this vertical would be watched as well. So far the company has maintained that the Asia Pacific business has been worst affected by the pandemic, but the outbreak has lately worsened in Europe and the US so the observation may change.
A Maybank Kim report noted that in terms of China, Singapore and Japan, TCS has a higher presence compared to peers at 5.3% of revenue, according to its subsidiary's financials. Like most companies, TCS has also activated precautionary measures to minimise the impact of service delivery. “However, we believe the indirect impact of Covid-19 and the US Fed rate cut will be higher for TCS compared to peers mainly due to financial services presence of 30% over that of peers’ at 22-26%," said the report.
IT companies face immense challenges in running mission critical applications during the lockdown. Employee spends, variable pay, attrition and guidance on Q1 hiring, which is when the company onboards a large chunk of its human resource requirements, will be keenly watched.
In the past two years, the company had doled out handsome variable pay around Q4 after closing the year with strong numbers, which is unlikely to happen this time given the large-scale uncertainty.