News Analysis

TCS: Cost control and large deals bode well for the future

Vivek Ananth BL Research Bureau | Updated on July 09, 2020

In rupee terms, TCS’ manufacturing and retail & consumer business verticals were the worst hit   -  Bloomberg

TCS, the first company to announce Q1 results for FY21, was severely impacted due to the pandemic. Except for lifesciences and healthcare, revenues from all other verticals have taken a hit.

The weakness in demand across all verticals led the revenues of the company down nearly 7 per cent quarter-on-quarter (QoQ) in dollar terms to $5.06 billion in the April-June 2020 period. This caused the margins to contract nearly 150 basis points sequentially to 23.6 per cent.

In rupee terms, consolidated revenues were down 4.1 per cent QoQ to ₹38,322 crore and consolidated net profit was down 12.9 per cent QoQ to ₹7,008 crore. The management said the company tried to maintain its employees costs at the same level as the quarter ended March 2020. It had already suspended lateral hiring and pay hikes for the financial year 2020-21. This along with a marginal decline in sub-contracting costs helped the company maintain its total costs at nearly the same level (₹29,274 crore) as the quarter ended March 31, 2020.

The management said that revenues in the December 2020 quarter onwards should be at the same level as compared to the December 2019 quarter.

Segment performance

In rupee terms (TCS does not breakup revenues of its verticals in dollar terms), manufacturing and retail & consumer business verticals were the worst hit. Manufacturing saw a near 8 per cent quarter-on-quarter fall in revenues to ₹3,884 crore and retail and consumer business saw an 11.5 per cent fall in revenues to ₹5,912 crore. Even communication, media and technology saw revenues fall by nearly 4 per cent in rupee terms.

Although banking, financial services and insurance vertical posted a 0.5 per cent sequential rise in revenues in rupee terms, the company said that this vertical was impacted severely. The company expects this vertical to recover in the second half of the year led by European banking and the US.

Decent pipeline

The company’s management said the $6.9-billion deals bagged by TCS during the quarter bode well for the future revenue visibility and pipeline. This includes four new customers in $100 million revenue bucket, taking the tally up to 48.

Customers across verticals are looking at cloud migration, digital workplace transformation and cyber security to operate in the current pandemic times. And the company expects this to drive future revenues and deals.

Published on July 09, 2020

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