Though the COVID-19 lockdown has initially made them jittery, the fourth quarter results of IT majors such as TCS, Wipro and Infosys indicate that the full impact of the pandemic is yet to be felt by the companies. The firms are foreseeing a significant amount of uncertainty in the times to come.
Experts say that the real impact of COVID-19 is expected to be felt in the April to June (first) quarter of the current financial year. All of them have not given any guidance as they are all staring at uncertainty and are not sure as to what will pan out in the future given the fact that a majority of their revenues come in from the western markets such as the US and Europe. All of them have also deferred promotions and hikes, but have said they would be honouring the recruitment they have done for the year.
IT major Infosys reported a 6.10 per cent year-on-year (YoY) rise in consolidated profit for the March quarter at Rs 4,321 crore compared with Rs 4,074 crore in the same quarter last year. A report by Motilal Oswal Institutional Equities based on the fourth quarter results of Infosys takes note that the company has called out a trend that clients are cutting back, reprioritising and delaying discretionary spends. “While nothing was alarming so far, the company did highlight that it is witnessing requests for price cuts or credit period extension. While there are not going to be COVID-19 related lay-offs, involuntary attrition related to performance may still continue. Suspension of salary hikes, promotions, incremental hiring and reduction in travel costs, capex and discretionary spends are key margin defences for Infosys,” pointed out the report.
The Motilal Oswal report further observes that despite encouraging medium-term prospects, Infosys hinted at a challenging near term with no clear view on recovery. The deal activity even for the previous four weeks was stated to be broad based. While the deal pipeline is still strong, conversion is expected to slow down the report observed. Infosys has hinted that near-term headwinds are expected to impact all verticals and geographies but areas like cloud, virtualization and security, etc can see strong traction.
Infosys also saw good growth in the digital business and its digital grew to 41.9 per cent of the revenue. The company also got some large deals with seven large deal wins from Americas and five from the Europe region. Majority of the company's workforce (about 93 per cent) is currently working from home due to the COVID-19 impact.
Last week, Wipro had witnessed a sequential fall in its net profit to Rs 2,345 crore, compared to the net profit of Rs 2,493 crore posted the same period last year. The company also does not have the visibility to the extent which COVID-19 will disrupt its operations, both in volume and pricing terms. But they are cautious as Wipro's management has highlighted the need for tremendous response on costs, and anticipates pricing pressure and stretch in working capital cycles. At the same time, the company is expecting heavy disruption in the near term in verticals such as retail, hospitality, travel, energy and automotive. Experts have observed that just as Infosys, Wipro too is also contemplating global slowdown due to the pandemic that is going to lead to a cut in discretionary spending, pricing discounts and postponement of large deals wins. Challenges in the BFSI segment on a medium-term basis, stress in manufacturing, especially automotive and the energy verticals, will offset the improving outlook in healthcare and communication. Wipro too, like Infosys, has already deferred annual wage increments and promotions for FY21 though it will honour its campus offers.
Similarly, TCS also finds the going tough in the next couple of quarters and reports point out that things may normalise only by the October-December quarter of FY21 for the company. TCS had reported a net profit of Rs 8,049 crore in the quarter ended March 31, 2020 down 0.9 per cent from a year ago profit of Rs 8,126 crore. TCS MD and CEO Rajesh Gopinathan had observed that the pandemic had impacted the positive momentum the company was seeing initially in the first half of the fourth quarter.
TCS also foresees low spending on digital spends by its clients due to the COVID-19 pandemic. This is on similar lines of Infosys and Wipro. Also TCS has also decided not to give any increments during these uncertain times, but will be honouring all the campus offers. The company had apparently made around 40,000 campus offers. Majority of the TCS employees were also working from home like the other two IT majors. Interestingly, TCS has observed an increased level of productivity and engagement from this in certain cases.
