TCS net profit flat at Rs 8,049 crore in Q4; freezes salary hike

The financial numbers are mostly in line with the estimates, but the industry bellwether acknowledged that the industry is in for business disruption because of the coronavirus pandemic.
Tata Consultancy Services (TCS) on Thursday posted a mix set of numbers, with the IT services firm missing estimates on the revenue front even as it improved its operating margin in Q4FY20.

Though earnings were less affected by the pandemic, the firm’s double-digit revenue growth streak, in constant currency (CC) terms, came to a halt.

For Q4FY20, it reported consolidated net profit of Rs 8,049 crore — a 0.8 per cent sequential decline, and 0.94 per cent year-on-year (YoY) fall. Revenue for the quarter stood at Rs 39,946 crore, up 0.2 per cent sequentially and 5.1 per cent YoY.

In dollar terms, revenue stood at $5.44 billion, a growth of 3 per cent YoY in CC terms. Operating margin expanded 10 basis points to 25.1 per cent — the highest in at least four quarters. The company also recorded the highest-ever large deal wins, during the quarter.

TCS crossed the $22-billion revenue mark in the whole of FY20 — a growth of 7.1 per cent in CC terms. It lost its double-digit revenue growth streak owing to weakness in key verticals. In rupee terms, revenue stood at Rs 1.57 trillion, a YoY rise of 7.2 per cent.

Net profit for the year rose 2.8 per cent to Rs 32,340 crore. Operating margin stood at 24.6 per cent, a slight miss from its intended range.

Like Wipro, which did not provide revenue guidance for the next quarter owing to uncertainty, the Tata Group firm also said maximum impact of the crisis would be felt during the first quarter of the current financial year (Q1FY21).

TCS, which doesn’t share revenue projection, said its long-term fundamentals remain strong and it would come back to its previous growth rate during Q3FY21, once the crisis subsides. “It is going to get worse before it gets better. From a near-term financial perspective, the revenue impact is comparable to the global financial crisis of 2008, and the peak impact will come in the next quarter,” said Rajesh Gopinathan, CEO and MD of TCS. He added that the long-term profitability model and margin target band of 26-28 per cent stands secured despite short-term volatility.

According to TCS’ top management, while the full impact of Covid-19 is difficult to predict, the firm is likely to end FY21 with a similar growth rate.

While growth was led by the life sciences and health care vertical that grew 16.2 per cent YOY, the communications and media vertical grew 9.3 per cent in Q4.

However, the banking, financial services and insurance (BFSI) segment declined 1.3 per cent. Retail and CPG grew 4.2 per cent. Geography-wise, growth was led by Europe, which grew at 11.9 per cent, while the UK saw 5.4 per cent growth. Growth in North America, however, remained at 4.3 per cent YoY.

As the crisis continues to play out its impact globally, TCS said it will not take cost-optimisation moves through retrenchment. “We will double down on our talent base and not retrench anyone,” Gopinathan added.

For the whole year, it added 24,179 employees on a net basis, taking the total headcount to 448,464 as of March. During the quarter, the net addition was at 1,789. Attrition fell to 12.1 per cent in Q4.

“We will honour all 40,000 offers made to campus recruits,” said Milind Lakkad, executive vice-president and global head (HR).

“However, we have decided not to give salary increments.” The quantum of promotions would depend on business performance, he added.



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