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TCS Q1 profit falls 14%, COVID-19 impact has bottomed out, says CEO

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TCS Q1 profit falls 14%, COVID-19 impact has bottomed out, says CEO TCS Q1 profit falls 14%, COVID-19 impact has bottomed out, says CEO golf Representative image

Tata Consultancy Services on Thursday said that while the impact of COVID-19 pandemic may have bottomed out, the recovery will vary depending on the various business verticals, with the European banking sector likely to recover from the current quarter, while the impact of the pandemic on airline and travel industry is likely to last for a year.

The country’s largest software services exporter said first-quarter net profit declined 14 per cent year-on-year to Rs 7,008 crore, while revenue was up 0.4 per cent from a year ago to Rs 38,322 crore. 

In US Dollar terms, net income in the April-June quarter declined 21 per cent from a year ago to $925 million, while revenue fell 8 per cent to $5.06 billion.

“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,” Rajesh Gopinathan, MD and CEO, said.

While the worst may be over for the company, recovery is only expected to be gradual over the next 2-3 quarters.

“We are quite confident that from rupee terms, we should be able to get back on the same year-on-year number by the time we get to Q3. So, we will be year-on-year flat in rupee terms by Q3 from where we see it today. On constant currency terms, we will come close to flat by Q3 and by Q4 we should be able to get to year-on-year flat in constant currency terms also,” Gopinathan said. 

The COVID-19 pandemic that has ravaged most major countries around the world, has hit businesses hard, baring a few exceptions. In the April-June quarter, life sciences and healthcare vertical saw a 14 per cent growth from a year ago. However retail and consumer packaged goods vertical saw a 13 per cent decline. Revenue in banking, financial services and insurance (BFSI) declined 5 per cent and manufacturing was down 7 per cent. Communications and media, technology and services also reported a 4 per cent de-growth. 

Geographically too, demand contraction was broad-based, baring Europe, which saw a 3 per cent growth and Latin America, which grew 0.2 per cent. 

Gopinathan expects sectors like banking to start recovering from the current quarter. 

“We should see recovery in capital markets and parts of banking, especially European banking, starting from this quarter and probably North American banking coming in by Q3. UK banking sector continues to be under pressure and its difficult to say when that will come back.

However, sectors like aviation and travel, which are among the worst affected by COVID-19 are going to take a much longer time to recover.

“On one end is our exposure to airlines, travel and hospitality, the impact of which is likely to stay for quite some extended period of time, probably a year or more. A third of the customers in retail have had practically zero impact and have been net positive. The remaining one third, we should see recovery in the latter half of fourth quarter or first quarter (next year),” said Gopinathan.

As of June 30, TCS had 443,676 employees. The attrition rate in IT services was at 11.1 per cent. 

Due to COVID-19, only 1 per cent of the workforce is currently working from TCS offices and that number is going to steadily increase over the next few quarters. 

Milind Lakkad, the global head of human resources at TCS said the company would honour all the 40,000 job offers that had been made to freshers. 

Recently, US President Donald Trump announced a temporary suspension of work visas like H1B. Separately, the Trump administration announced that foreign students enrolled in US universities, whose classes had moved entirely online, would have to leave the country. 

Lakkad said the suspension of visas would have some short-term impact. 

“This proclamation is unfortunate and unfair from our perspective. From a business perspective, in a short-term, we will have some impact. But, considering our strong supply and delivery system in the US, and our customer adopting location-independent model of SBWS (secure borderless workspaces), we will be able to manage the situation.”

However, there would be a long-term sourcing challenge as a fair share of students in the STEM (science, technology, engineering and maths) disciplines were international students, noted Lakkad.  

“The treatment of international students and potential changes in the OPT (optional practical training) regulation in the future will have implications not only on us, but on the future of technology development in the US,” he added.

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