Deal wins, verticals traction to help TCS tide over COVID-19 impact

Tata Consultancy Services, India’s largest software services exporter, subdued April-June quarter earnings performance turned out to be little worrisome to investors. However, the management confident of overcoming vulnerability caused by the Coronavirus or COVID-19, will go long way in steady the ship.
Cost optimisation, new deal wins and rise in tech intensity across various vertical are favouring TCS to outperform in the long run.

TCS reported 13.81% on year (YoY) fall in profit at Rs 7,008 crore for the fiscal first quarter ended June 30. Consolidated revenue inched higher by 0.39% on a yearly basis to Rs 38,322 crore. In constant currency terms revenue witnessed a drop of 6.3%, reflecting COVID-19 pandemic impact.

Life sciences and healthcare segment continued to grow strongly at 13.8% on year. Other than that, all other industry verticals showed declines of varying degrees: BFSI (down 4.9%), retail and CPG (down 12.9%), communications and media (down 3.6%), manufacturing (down 7.1%) and technology and services (down 4%).
Demand contraction was broad-based by geography. Other than Europe (up 2.7%) and Latin America (up 0.2%), growth declined in all other markets: North America (down 6.1%), UK (down 8.5%), India (down 27.6%), Asia Pacific (down 3.2%) and MEA (down 11.7%).

Total deals won during the quarter stood at $6.9 billion in Q1FY21, against $8.9 billion in Q4FY20.
TCS Management believes the worst impact of COVID-19 is behind (both in terms of revenue and profitability) even as some variables such as pricing and working capital cycles warrant a close watch.
The Tata Group technology company is likely to emerge as a key beneficiary of the COVID-19-led increase in tech intensity across verticals.
The board recommended a dividend of Rs 5 per share.

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