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TCS Q4 net profit falls 0.9 pc; storm will get worse before it gets better, says CEO

Company expects normalcy to return in October-December quarter

Representational image: A private security guard stands at the exit gate of the headquarters of Tata Consultancy Services (TCS) in Mumbai, India October 13, 2016 | Reuters

The coronavirus outbreak that has spread across the globe and the lockdowns in many countries, including India, are expected to hit businesses hard. Tata Consultancy Services, the country’s largest software services exporter, expects things will get worse and some sort of normalcy is likely to return only in the October-December quarter.

“We are in a midst of a storm, no doubt about it. More importantly, the storm is going to get a lot worse before it gets better,” Rajesh Gopinathan, MD and CEO of TCS, told reporters on Thursday.

He said the impact is comparable to the global financial crisis of 2008 and the peak of the coronavirus impact was likely in the April-June quarter.

“Assuming the peak is in Q1, we have modelled it and we believe we should be able to get back to where we were in Q3, 2020, by the time we get to Q3, 2021,” Gopinathan said.

TCS reported a net profit of Rs 8,049 crore in the quarter ended March 31, 2020, down 0.9 per cent from a year ago profit of Rs 8,126 crore.  Quarterly revenue rose 5 per cent year-on-year to Rs 39,946 crore.

TCS said it had strong deal closures in the fourth quarter and the order book was the largest ever since it started reporting the metric. But, “the pandemic completely reversed the positive momentum that we had started seeing in some of our biggest verticals in the first half of the quarter,” said Gopinathan.

Among key geographies, Europe reported strong growth at near 12 per cent. However, North American market grew just 0.2 per cent, while in India there was a decline of around 2 per cent.

The life sciences and healthcare vertical as well as media and communications vertical continued to outperform the overall revenue growth. While revenue from life sciences grew 16 per cent, communications and media saw 9 per cent growth. However, retail grew just 4 per cent and revenue from banking, financial services and insurance vertical fell 1.3 per cent.

The company officials said the impact of the shutdown was widespread and the crisis is likely to accelerate clients’ spends on digital services. 

India has extended the nationwide lockdown till May 3 and there is no certainty that things will go back to normal right away once the lockdown is lifted. US and Europe—key geographies for technology companies—too have been hit hard by COVID-19 with lakhs of people infected with the virus and thousands dead.

Last financial year, TCS hired 24,179 people, taking its total headcount to 4,48,464 employees.

TCS is not announcing any salary increments in these uncertain times. However, it doesn’t see any retrenchments happening and will also honor its earlier offers for trainees.

“We will be honoring all the offers we made to campuses; 40,000 offers we made to campuses this year (FY20). Promotions will continue, the quantum of promotions will depend on the business performance. We have decided not to give any salary increments at this point in time,” said Milind Lakkad, global head of human resources.

Amid the COVID-19 lockdown, most employees of tech companies are working from home. TCS said the location independent, agile workspaces concept it introduced a few years ago had helped in adjusting quickly to the current situation.

The company has been pushing it further to what it calls the open agile workspaces concept and this opportunity will help it further accelerate its evolution to secured borderless workspaces, said Gopinathan.

“We are seeing increased levels of productivity in certain instances and increased level of engagement,” he added.