TCS Q1 results miss estimates

Last updated: 15 Jul, 2020 | 12:15 pm

TCS Q1 results miss estimates
  • Profit below estimates: Tata Consultancy Services, India's largest software services exporters, has reported a 14% on-year drop in net profit to ₹7008 crore in Q1FY21, missing analyst estimates. Analysts had earlier estimated a profit of about ₹7,694 crore.
  • Revenue falls across segments: Revenue too missed estimates (up about 0.4% on-year). This was mainly due to the delay in deals and project execution given the coronavirus pandemic. TCS said that the lockdown affected all verticals, with varying levels of impact. The table below shows the QoQ difference in sales for all verticals of TCS.
  • Margins decline: The company’s operating margin too declined by 1.5% on quarter. TCS said that it has 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. The chart below shows EBITDA margins on the company over the last few quarters. 
  • Dividend: The board recommended an interim dividend of Rs 5 per share. This will be paid on July 31. The company has fixed July 17th as the record date. 

The ongoing pandemic has affected businesses across industries. Q1FY21 results were expected to be very weak, due to the lockdown imposed on March 24th. TCS believes that the effect has now bottomed out, and the company should now start tracing its path towards growth. 

The Covid-19 pandemic has forced a tectonic shift in businesses processes to move towards greater digitization. In fact, TCS has said that many of its customers have shifted their focus on front-end transformation, resulting in significant traction for its products and services. Given its leadership position in the market, TCS is well-placed to take advantage of this shift. 

The shares have run-up by more than 53% from their March-lows to hit a 52-week high of ₹2,302 last week. TCS is currently trading at a PE ratio of about 25, as compared to the industry average of 20. 

Our VGQM model has a HOLD rating on the stock.

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