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TCS Q1 profit falls 13% QoQ to Rs 7,008 crore, but deal wins remain robust

Earnings missed analysts' expectations on all counts. Profit was estimated at Rs 7,690 crore on a revenue of Rs 38,795 crore

July 09, 2020 / 07:50 PM IST
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The country's top IT services major Tata Consultancy Services (TCS) on July 9 flagged off the June quarter earnings season by reporting a profit at Rs 7,008 crore, down 12.9 percent QoQ, dented by lockdown-led supply and demand challenges.

The year-on-year fall in profit stood at 13.8 percent, which partially impacted by a 67.8 percent YoY (down 19 percent QoQ) decline in other income to Rs 456 crore.

Consolidated revenue declined 4.1 percent sequentially to Rs 38,322 crore in the quarter-ended June, impacted by all segments, barring banking, financial services and insurance (BFSI). However, revenue increased 0.4 percent YoY.

Dollar revenue declined 7.1 percent QoQ to $5,059 million in Q1, while revenue in constant currency terms dropped 6.9 percent QoQ, which was a much higher decline than the analysts’ estimates of around 6 percent. Constant currency revenue growth in Q1FY19 and Q4 FY19 stood at 10.6 percent and 3 percent, respectively.

"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, its CEO and Managing Director, said.


"After the initial period of disruption, customers have now stabilised their operations and are now embarking on new beginnings to adapt and thrive in a post-pandemic world. We are seeing many customers focus on front-end transformation, resulting in significant traction for our products and services," he added.

Earnings missed analysts' expectations on all counts. Profit was estimated at Rs 7,690 crore on a revenue of Rs 38,795 crore, according to the average of estimates of analysts polled by CNBC-TV18.

Deal wins remained robust at $6.9 billion in Q1 against $8.9 billion in March quarter and against the average of $6.8 billion in the last four quarters.

On the operating front, earnings before interest and tax (EBIT) declined 9.7 percent QoQ to Rs 9,048 crore and margin fell 148 bps to 23.61 percent, which both were below CNBC-TV18 poll estimates of Rs 9,442 crore and 24.34 percent, respectively.

On the year-on-year basis, EBIT was down 1.8 percent, but margin expanded 231 bps for the quarter.

"TCS numbers missed estimates and the numbers paint a grim picture. Retail continue to getting challenging, but BFSI surprised. Only worry is the depreciation in dollar, which is a reality and that could takeaways some gains," Prakash Diwan of Altamount Capital told CNBC-TV18.

BFSI was the only segment registered sequential growth, rising half a percent QoQ to Rs 15,282 crore, but others segments reported a decline.

Revenue from manufacturing segment declined 7.9 percent sequentially to Rs 3,884 crore. The same for retail and consumer business fell 11.5 percent to Rs 5,912 crore. Communication, media and technology saw a 3.8 percent QoQ decline in revenue to Rs 6,495 crore. Others dropped 4.8 percent to Rs 6,749 crore in the June quarter.

Gopinathan said the BFSI would recover in the second half of FY21 and Europe would get back to growth through the course of the year.

TCS has declared an interim dividend of Rs 5 per equity share at the end of the June quarter.

The stock gained 14 percent in the June quarter and rose 3.6 percent year-to-date to trade around its highest level, while the Nifty IT index was up 15.6 percent during the quarter and down 6 percent year-to-date.

In a BSE filing on July 7, the company said it received nine complaints from investors, of which seven were disposed of and two remained unresolved at the end of the June quarter.

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first published: Jul 9, 2020 05:53 pm
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