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TCS Q1FY21 review: IT giant to recover from coronavirus only in FY22

TCS's dividend is the major source of income for Tata Sons, the holding and the promoter company of the Tata group, to fund the investment and growth of other group firms

twitter-logoNevin John | July 10, 2020 | Updated 16:01 IST
TCS Q1FY21 review: IT giant to recover from coronavirus only in FY22
In FY19, TCS accounted for 95 per cent of Tata Sons' dividend

The coronavirus outbreak has halted Tata Consultancy Services (TCS)' growth plans for at least a year. The Indian IT giant expects to turn the tide only from financial year 2021-22. In constant currency terms, the company's revenue slipped 6.3 per cent in the April-June quarter. Though the company has not provided the profit fall in constant currency terms, it has dipped 20.8 per cent in dollar terms. Since the rupee depreciated in the quarterly comparisons, it helped TCS post better numbers in terms of dollar revenues and the net profit.

According to industry experts, the rest of this financial year will be the recovery period for the IT behemoth. "Europe (except UK) is resilient to coronavirus's financial impact. But the pandemic has dented the US and the UK economies, TCS's largest markets," a Mumbai-based analyst said.

Rajesh Gopinathan, CEO and MD of TCS said that the company should be able to register year-on-year flat growth in the fourth quarter in the constant currency terms. TCS, on Thursday, reported a 13.8 per cent year-on-year decline in its consolidated net profit at Rs 7,008 crore for the first quarter, on a consolidated revenue at Rs 38,322 crore, which was 0.4 per cent up.

The lower profits are expected to have an impact in the dividend payout of the IT giant. The board has declared an interim dividend of Rs 5 per a share with the Q1 result. TCS's dividend is the major source of income for Tata Sons, the holding and the promoter company of the Tata group, to fund the investment and growth of other group firms.

In FY19, TCS accounted for 95 per cent of Tata Sons' dividend. The holding company is estimated to have earned nearly Rs 19,600 crore as income from dividend and share buyback of TCS, up from around Rs 18,600 crore a year earlier. Tata Sons holds 72 per cent stake in TCS. TCS faces growth challenges as its large clients go whole hog in cost optimisation. Many of its customers have taken the blow at this point of time. Gopinathan said that some of them are critically injured.

Also read: TCS Q1 dollar revenue dips 7.8% YoY; firm expects growth revival in second half

Also read: EXCLUSIVE: Lakshmi Vilas Bank a strategic oppurtunity, due diligence process on, says CLIX Capital

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