Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

Update on the Indian Equity Market:

On Monday, Nifty closed unchangedat 9,262. Within NIFTY50, TATAMOTORS (+4.2%), SUNPHARMA (+3.9%) and HDFCBANK (+3.6%) were the top gainers, while HINDALCO (-5.6%), JSWSTEEL (-5.6%) and AXISBANK (-5.4%) were the top losers. Among the sectoral indices,PSU BANK (+4.2%), IT (+1.6%) and REALTY (+0.6%) gained the most. METAL (-3.3%), FMCG (-2.1%) and AUTO (-1.4%) were the top losers.

Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

Excerpts of an interview with Mr N Ganapathy Subramaniam, COO- TCS published in Business Standard dated 20^th April 2020:

• Back in December, TCS dealt quickly in China. That led to none of their employees getting affected by covid-19.
• TCS has formed a committee that meets every day and coordinates operations globally. More than 90% of the workforce is working from home (WFH). As long as the work is getting done, TCS is not in a hurry to get employees back in the office space.
• In March, 2/3^rd of the business impact was due to supply side issues. This was due to employees having to WFH and approvals had to be obtained from clients for the same.
• In 1QFY21E, 80% of the business impact will come from demand side. There are various discussions happening with clients. Some clients are asking how TCS can help them in their business in current stressed situation, some clients are asking for pricing discounts, while some are asking to halt projects. On the other hand there are also situations where clients are asking to accelerate projects and finish ahead of time. TCS has also got certain additional work from clients where their other vendors could not do it, and also in cases to help moving operations to WFH.
• TCS has seen some suspension of projects in certain pockets, but there have been no cancellations.
• It is difficult to assess the current situation. But when the pandemic is contained and economic activity resumes, all sectors will rebound simultaneously. Once the pandemic is over, the recovery will be swift and V-shaped. Given the deal pipeline and demand scenario, management is optimistic of reaching the 3QFY20 revenue level of ₹ 390 bn in 3QFY21E.
• TCS has various levers that it will implement to undertake cost optimization. First and the biggest available lever is how a project can be executed within budget and time. Second is reduction in employee costs on account of no salary hikes and reduction in travel costs due to WFH. Third, marketing costs will come down with more digital marketing. The other cost efficiencies can be achieved by controlling utility costs and contracting costs.
• TCS is open to look at M&A opportunities in these times as according to the management, these are good times to buy. TCS had its biggest acquisition (captive BPO of Citigroup) during the Global financial crisis.

Consensus Estimate: (Source: market screener website)

• The closing price of TCS was ₹ 1,819/- as of 20-April- It traded at 20.9x/ 21.3x/ 19.1x the consensus EPS estimate of ₹ 86.9/ 85.5/ 95.4 for FY20E/ FY21E/ FY22E respectively.
• Consensus target price of ₹ 1,829/- implies a PE multiple of 19.2x on FY22E EPS of ₹ 95.4.

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