IT companies are staring at falling spends and mounting working capital and it could take more than two quarters to recover from the coronavirus-induced crisis, feel industry watchers.
TCS results and the leadership commentary reflected the same.
However, the IT major saw record deal wins and was able to quickly secure work from home for more than 90 percent of its workforce. There are close to 4.5 lakh employees in TCS.
The management said the actual impact will be felt in the June quarter as clients cut down on spending, discounts on existing contracts and slump in demand.
For the IT majors, the crisis mimics the global financial crisis of 2008.
"We expect this to be worse than the global financial crisis," said Rajesh Gopinathan, CEO, TCS, while announcing the results.
The company reported $22,030 million in terms of revenue, up 5.34 percent, from FY19. Last time the company reported similar growth was back in FY10, during global financial crisis.
However, Gopinathan said he expects the demand recovery to start from Q3 after the peak impact in Q1. "We expect Q3 and Q4 of FY21 to be what we saw in Q3 and Q4 of FY20," he said. The company’s revenue at the end of December 2019 quarter was $5586 million.
But it is surprising to see that the company is expecting a rebound in Q3 prospects despite operating in a tough environment.
Also Read: What should investors do with TCS stock post Q4: buy, sell or hold?
Most analysts Moneycontrol spoke to pointed out that growth revival in Q3 is a steep ask.
The crisis could not have come at a worse time. The company saw single digital growth in Q2 and Q3 due to macros such as Brexit and softness in the banking and financial markets, the largest revenue generator for the company. It accounts for about 30 percent of overall revenue.
Like Gopinathan said during the results announcement, the COVID-19 impact is more broad-based and has affected all sectors invariably. Aviation, manufacturing, retail, banking and even healthcare. While the healthcare sector is seeing traction, Gopinathan raised concerns about all activities including operations postponed except COVID-19 and it is likely to impact the business.
Also Read: TCS – The long run winner post COVID-19 (MC Pro)
So getting back to Q3 growth of 6-7 percent growth is easier said than done. Unlike 2008, there is no clarity on how long the situation could prolong nor can you account for behavourial changes of customers.
According to an IT industry veteran, recovery may begin from Q3 but it will be at least 18 months or longer before IT sector can get back to normalcy and that includes TCS as well.
"For only if the other sectors do well and economy does well, we can do well," he said.
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