TCS Q1 net drops 14 pc to Rs 7,008 cr, expects pre-COVID revenues by March

It expects revenues to touch pre-COVID-19 levels only by the January-March quarter of this fiscal.

TCS had posted a consolidated net profit of Rs 8,131 crore in the year-ago period.

The company's Q1 revenue was almost flat in rupee terms at Rs 38,322 crore but was down 6.3 per cent on constant currency (CC) basis. Revenues were lower by 4.06 per cent when compared with the previous quarter's figure of Rs 39,946 crore.

"Our visibility on Q3 (September-December) is better now. We should be breaking at year-on-year positive in Q3 in rupee terms and close to it on CC terms, and breaking even by Q4 (January-March).

"Impact is steepest in Q1 (the reporting quarter)," TCS CEO and MD Rajesh Gopinathan said in what can be termed as a guidance towards the future, which is a departure from its practice of not making any targets public.

Gopinathan, who had earlier compared the COVID-19 pandemic to the global financial crisis of 2008, said the recovery trajectory is faster right now than what was experienced over a decade ago.

The company's operating margin slid by 0.54 per cent to 23.6 per cent and Gopinathan said it was able to defend the margins because of financial management. The company's aspirational band is to have margins between 26-28 per cent.

Its Chief Financial Officer V Ramakrishnan elaborated that it was able to protect the margins as it did not give out hikes as they happen every year in the first quarter and also benefitted through a rationalisation at the sub-contractors' level.

He added that the slower revenues also had an impact on the margins, and the profitability will increase once the revenue increases.

Continental Europe showed a 2.7 per cent increase in revenues, while lifesciences and healthcare sector revenues grew nearly 14 per cent.

All other geographies and sectors, including the largest revenue contributors -- the US and banking, financial services and insurance (BFSI) -- showed de-growth of varying degrees.

Gopinathan said he expects recovery from the second half of FY21, including in the US and BFSI sector. He, however, said that retail, aviation and hospitality will be the last to recover and it may well go into the new fiscal.

TCS Chief Operating Officer N G Subramaniam said the total deal value closed during the quarter was USD 6.9 billion, a surge of 20 per cent over the same period last year.

Gopinathan defended concerns on some of the deals not getting converted, pointing out to a reduction in the unbilled revenues at Rs 9,500 crore.

Gopinathan further said given the difficulties faced by clients in the pandemic, the company is taking a "pragmatic" approach, wherein requests for delayed payments for work are being accepted on a case-by-case basis to protect a long-term business relationship.

On the human resources front, the company said it is targeting to take the total number of those working out of its campuses up to 5 per cent by the end of the quarter. It is also restarting to hire laterally, which had to be frozen after the onset of the pandemic.

Its Global HR chief Milind Lakkad said there has been a reduction of nearly 5,000 professionals in the overall headcount to 4.43 lakh because of routine voluntary resignations and a freeze on lateral hiring.

Gopinathan said it absorbed hundreds of employees from the clients' end during the quarter. Ramakrishnan said there have not been any involuntary exits.

The aspiration to have only 25 per cent of the overall workforce to be in the offices by 2025 is still on, Subramaniam said. Gopinathan made it clear that this is not driven by profitability concerns but more by its ability to retail talent in the future.

He also made it clear that at present, the company is paying for maintenance of all its 120 facilities across the world in a ready-to-work condition and also investing in migration of work to homes, and hence, there is no margin benefit from the staff working from home.

Lakkad also went public with its displeasure at the twin regulatory moves in the US -- banning H1-B visas for this year and also the plan to deport foreign students enrolled in online-only classes -- terming it as "unfair" and also counter-productive.

"TCS results are not surprising, given the impact of pandemic on IT services industry. TCS has nearly 40 percent exposure to BFSI sector and since most other sectors are also not performing well, the decline in revenue was expected.  "The challenge will continue for TCS through the next 2 -3 quarters," analysts at Gartner said in a statement on the company results.

The company scrip ended 0.60 per cent down at Rs 2,204.35 apiece on the BSE on Thursday, as against gains of 1.12 per cent on the benchmark.