TCS CEO says ‘worst of COVID-19’ is behind us

TCS Q1 profit and loss account

TCS CEO Rajesh Gopinathan said that the worst of the impact of the COVID-19 pandemic seems to be behind his company, while commenting on the performance of the outsourcing and tech solutions company during the April-June period.

During the three months, the company reported a sharp fall in its revenue and profit.

Revenue, counted in the currencies in which TCS bills its clients, fell by 6.3% during April-June 2020 compared to the same three months of the previous year.

The company normally reports growth of around 3-4% on this metric, which indicates that there was an impact of around 10% due to the COVID-19 pandemic.

However, since the rupee actually fell even more against foreign currencies during the period, realized rupee revenue actually went up by 0.4% after conversion from foreign currencies.

But the same could not be said for the company’s profits.

Despite the boost from a decline in the value of the rupee — the currency in which TCS incurs most of its costs — the company still saw a fall of 11.7% in its profit before tax, and an equally steep fall in its profit after tax.

This was primarily due to a 6.2% increase in TCS’ employee costs. The company spends about 55% of its revenue on paying salaries to its employees.

The fact that revenues did not grow this time, while employee costs jumped 6.2%, hurt the company’s profit margins.

TCS’ numbers are worse than what the Street expected.

However, CEO Rajesh Gopinathan maintained that April-June period was probably the worst of the COVID-19 impact.

“The revenue impact of the pandemic played out broadly along the lines we had anticipated at the start of the quarter,” he said.

“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.”

TCS’s biggest revenue contributor — the financial services industry — saw the total billed amount fall by 4.9% compared to the same period last year. However, the number was slightly higher than last year’s when converted into rupees because of the fall in the value of the Indian currency.

The biggest impact, as expected, was on retail and consumer products, which fell by 12.9% (in billed currency), while manufacturing fell 7.1% on year and tech services fell 4% and communications and media fell 3.6%.

On the other hand, the company’s life sciences and healthcare division saw a 13.8% jump, which was crucial to cushioning the blow.

Gopinathan said customers are starting to invest into their business and this is helping the company, which offers different ways to increase productivity and reduce costs to its customers.

“After an initial period of disruption, customers have now stabilized their operations and are now embarking on new beginnings to adapt and thrive in a post-pandemic world.

“We are seeing many customers focus on front-end transformation, resulting in significant traction for our products and services,” he said.

He said companies are investing to drive “operational resilience, adaptability and optimization” during these times of uncertainty and disruption.

“We signed several large core transformation programs encompassing operations, applications, cloud and cybersecurity.

“Our Machine First approach, delivered using the Secure Borderless Workspaces model is helping us win such opportunities,” he said.

“Very encouragingly, we saw customers launch new business transformation programs or restart deferred programs during the quarter. This is indicative of business confidence returning in pockets.”

However, analysts continue to be cautious on the company’s prospects in the coming quarters. Most believe that the worst is yet to come, and will hit the sector in the ongoing quarter or the next.

Aniket Pande, lead tech analyst for broking firm Prabhudas Lilladher, said the financial services and retail sectors “will continue to face headwinds in the next quarter also”.