BackTCS in recovery mode even as net profit down 13% QoQ
In the preceding quarter, TCS had reported its strongest ever quarterly order book at $8.9 billion worth of total contract value
PremiumIndia’s largest IT services company Tata Consultancy Services (TCS) Ltd reported a net profit of ₹7,008 crore, down 13% sequentially for the first quarter ended June, below analyst estimates of about 5% sequential decline. On a year-on-year basis, the net profit was down 13.8% from ₹8131 crore in the corresponding quarter of the previous year.
The revenues for the quarter declined 6.3% y-o-y in constant currency but marginally grew 0.4% y-o-y in reported terms to ₹38,322 crore driven by broad-based deal wins worth a total contract value (TCV) of $6.9 billion including a mix of large deals in digital infrastructure and smaller deals in the security infrastructure space.
In the preceding quarter, TCS had reported its strongest ever quarterly order book at $8.9 billion worth of total contract value.
“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 Rajesh Gopinathan, chief executive officer and managing director, TCS said.
Gopinathan said the company is likely to show signs of recovery in the upcoming quarters driven by growth in Europe. The “recovery trajectory" will be faster than that during the global financial crisis of 2008-09 and the deal pipeline is strong given the market share gains in its key geographies, he said.
Commenting on the recent H1-B visa suspension by the US government, Gopinathan said the decision is “unfortunate" although TCS is well positioned to manage the challenges with its location-independent model.
Operating margins for the June quarter stood at 23.6% down from 24.6% in the previous quarter as revenues declined. However, the company managed to maintain the impact on margins with “tight financial management of ancillary expenses," according to Gopinathan.
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 institutionalized. We have been able to seamlessly adapt and extend it to prospect for new business, sell, contract and execute programs," said N Ganapathy Subramaniam, chief operating officer, TCS.
In terms of geographies, other than Europe and Latin America which grew 2.7% and 0.2% y-o-y in constant currency respectively, growth declined in all other markets. North America which contributes about 50% to the company’s total revenue declined 6.1% as well as UK, India, Asia Pacific, and Middle East & Africa (MEA) which declined 8.5%, 27.6%, 3.2%, and 11.7% y-o-y respectively.
Life Sciences & Healthcare continued to grow strongly at 13.8% y-o-y. Other than that, all other industry verticals showed declines of varying degrees. Banking, financial services & insurance (BFSI) sector declined 4.9% along with Retail & CPG (-12.9%), Communications & Media (-3.6%), Manufacturing (-7.1%) and Technology & Services (-4%).
The company’s consolidated headcount was down by 4,788 at 443,676 as of 30 June. Milind Lakkad, global head of HR, TCS, has attributed the decline to “voluntary attrition". Meanwhile, TCS said it continued investments in organic talent development and upskilling of employees. The attrition rate stood at 11.1%.
Ahead of the earnings announcement, shares of TCS were down 0.6% to close at ₹2,204.35 on the BSE.
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