Tata Consultancy Services

Tata Consultancy Services

Jul 10, 2020 10:07 IST capital market

Impact of the pandemic played out broadly in line with expectations

Tata Consultancy Services (TCS) for the quarter ended Jun 2020 reported a consolidated revenue of Rs 38322 crore, a fall of 4% compared to sequential previous quarter ended Mar 2020 revenue of Rs 39946 crore. Lower revenue for the quarter is largely as revenue of all verticals barring BFSI register lower revenues. Revenue of BFSI was flat (up 0%) at Rs 15282 crore but that of Manufacturing, Retail and communication was down by 8% (to Rs 3884 crore), Retail (down 12% to Rs 5912 crore) and communications (down 4% to Rs 6495 crore).

As OPM contract by 130 bps to 26.2% from 27.5% in sequential previous quarter the operating profit was down by 9% to Rs 10024 crore. Hit further by lower other income and higher depreciation, the PBT was down by 10%QoQ to RS 9504 crore. With taxation stay higher by 1% to Rs 2455 crore, the PAT was down by 13% to Rs 7049 crore. Eventually the net profit (after MI) was down by 13% to Rs 7008 crore with MI (being share of profit) stand lower by 7% to Rs 41 crore.

Quarterly result YoY comparison

On constant currency (CC) basis the revenue de-grew by 6.3%yoy. Revenue for the quarter ended March 2020 was flat (up by 0%) to Rs 38322 crore and that was driven by growth in revenue in all segments barring manufacturing and retail.

On yoy comparison the OPM contracted by marginal 10 bps to 26.2% and thus the growth at operating profit was flat at Rs 10024 crore. Hit by 64% fall in OI, the growth at PBIDT was down by 9% to Rs 10622 crore. The interest cost was down by 45% to Rs 142 crore. The depreciation was up by 19% to Rs 976 crore. Thus the PBT was down by 11% to Rs 9504 crore. The taxation was down by 1% to Rs 2455 crore and thus the PAT was down by 14% to Rs 7049 crore. With minority interest stand higher by 86% to Rs 41 crore, the net profit was down by 14% to Rs 7008 crore.

Markets: Demand contraction was broad-based by geography. Other than Europe (+2.7%) and Latin America (+0.2%), growth declined in all other markets: North America (-6.1%), UK (-8.5%), India (- 27.6%), Asia Pacific (-3.2%), and MEA (-11.7%).

Annual performance

Sales for the period was up by 7%yoy to Rs 156949 crore and with OPM contract by 20 bps to 26.8%, the growth at operating profit was 7% to Rs 42109 crore. Gained by 7% growth in OI to Rs 4592 crore, the PBIDT was up by 7%yoy to Rs 46701 crore. As interest cost and depreciation stand higher, the growth at PBT was restricted to stand at 2% to Rs 42248 crore. After accounting for taxation (down 2% to Rs 9801 crore), the PAT was up by 3% to Rs 32447 crore. With MI stand higher by 19% to Rs 107 crore, the net profit was up by 3%yoy to Rs 32340 crore.

Management Comment

Rajesh Gopinathan, CEO & MD of the company commenting on the performance said, 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. He added After an initial period of disruption, customers have now stabilized 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. The other big investment themes are around driving operational resilience, adaptability and optimization. We signed several large core transformation programs encompassing operations, applications, cloud and cybersecurity. Our Machine First? approach, delivered using the Secure Borderless Workspaces? model is helping us win such opportunities. Very encouragingly, we saw customers launch new business transformation programs or restart deferred programs during the quarter. This is indicative of business confidence returning in pockets.

N Ganapathy Subramaniam, COO & ED said, The location independent way of working is gaining traction. Our customers are quite comfortable integrating the remote workforce, using new collaborative technologies to get work done. Our Secure Borderless Workspaces? model has been institutionalized. We have been able to seamlessly adapt and extend it to prospect for new business, sell, contract and execute programs.

V Ramakrishnan, CFO said, We have taken a supportive approach to employees and vendors, and used other efficiency levers to limit the impact of the sharp revenue decline during the quarter, and still delivered an industry-leading operating margin. Disciplined execution resulted in superior cash conversion and a strong cash balance that positions us very well to weather the downturn.

Other developments

In October 2014, Epic Systems Corporation (referred to as Epic) filed a legal claim against the Company in the Court of Western District Madison, Wisconsin for alleged infringement of Epics proprietary information. In April 2016, the Company received an unfavourable jury verdict awarding damages totalling Rs 7098 crore (US $940 million) to Epic. In September 2017, the Company received a Court order reducing the damages from Rs 7098 crore (US $940 million) to Rs 3171 crore (US $420 million) to Epic. Pursuant to US Court procedures, a Letter of Credit has been made available to Epic for Rs 3322 crore (US $440 million) as financial security in order to stay execution of the judgment pending post judgment proceedings and appeal. Pursuant to reaffirmation of the Court order in March 2019, the Company has filed a notice of appeal in the superior Court to fully set aside the Order. Epic has also filed a cross appeal challenging the reduction by the trial judge of Rs 755 crore (US $100 million) award and Rs 1,510 crore (US $200 million) in punitive damages. The Company has received legal advice to the effect that the order and the reduced damages awarded are not supported by evidence presented during the trial. Accordingly, this matter is disclosed as contingent liability.

Declared interim dividend of Rs 5 per equity share

The Board of Directors at its meeting held on July 9, 2020, has declared an interim dividend of Rs 5 per equity share.

Tata Consultancy Services: Consolidated Financial Results

 

2006 (3) 2003 (3) Var. (%) 1906 (3) Var. (%) 2003 (12) 1903 (12) Var. (%)
Sales 38322 39946 -4 38172 0 156949 146463 7
OPM (%) 26.2 27.5 26.3 26.8 27.0
OP 10024 10976 -9 10037 0 42109 39506 7
Other inc. 598 738 -19 1675 -64 4592 4311 7
PBIDT 10622 11714 -9 11712 -9 46701 43817 7
Interest 142 251 -43 257 -45 924 198 367
PBDT 10480 11463 -9 11455 -9 45777 43619 5
Dep. 976 951 3 817 19 3529 2056 72
PBT 9504 10512 -10 10638 -11 42248 41563 2
Tax 2455 2419 1 2485 -1 9801 10001 -2
PAT 7049 8093 -13 8153 -14 32447 31562 3
MI 41 44 -7 22 86 107 90 19
Net Profit 7008 8049 -13 8131 -14 32340 31472 3
EPS (Rs)* 74.8 85.9 86.7 86.2 83.9
* On post-bonus Paid up equity capital of Rs 375 crore, Face value Re 1,
Figures in crore
EO: Extraordinary items
EPS is adjusted after EO and relevant tax
Source: Capitaline Databases

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