Work from home and company’s profitability – IT sector


In the new normal, all service industries have learned to work from home efficiently. According to some newspaper, few companies are also offering their employees to opt for work from home permanently. This can be a very welcome change in the shift in the thought process of India Inc. On the other hand, it’s very much significant to understand the financial impact of “Work from Home” shift on the companies. Most of the service departments of every company are fully working from home from the beginning of the financial year i.e. from 1st April 2020. Now we have already completed the 1st financial quarter and companies have started declaring their figures for the June 2020 quarter. In India, techno savvy staff and proactive preparations helped IT sector for shifting to the work from home culture very efficiently. Now let’s understand whether this shift was fruitful for the IT sector or they were also marred badly due to lockdown situation.
“NIFTY 50 – top 50 companies on the National Stock Exchange (NSE)” is quite familiar term even among the non-finance background people. NSE have built the separate Index comprising the companies working in the same sector. “NIFTY IT Index” is derived from the top working companies listed on NSE from the IT sectors.

IT companies & its market capitalisation
Company Name
Market Capitalisation
%
Tata Consultancy Services Ltd.
6,85,22,297
51.64%
Infosys Ltd.
2,73,20,750
20.59%
HCL Technologies Ltd.
1,18,42,434
8.93%
Wipro Ltd.
1,12,37,966
8.47%
Tech Mahindra Ltd.
54,61,323
4.12%
Info Edge (India) Ltd.
24,89,195
1.88%
Larsen & Toubro Infotech Ltd.
24,86,562
1.87%
MindTree Ltd.
13,63,805
1.03%
MphasiS Ltd.
12,38,798
0.93%
NIIT Technologies Ltd.
7,16,402
0.54%
Total Market capitalisation for NIFTYIT
13,26,79,533
It can be seen that TCS, Infosys, HCL and Wipro are having the major market capitalisation among the IT index companies. Any movement in the performance of the company will have a vital impact on the IT Index.  Now let’s scrutinise the financial performance of these top 4 companies (having around 92.63% of capitalisation in Index) by comparing the financial records of 1st quarter of 2019 and same quarter of 2020.
Total sales and Profit before Tax
Total Sales
Period
Jun '19
Jun '20
Change

TCS
38,172
38,322
0.39%

INFY
21,803
23,665
8.19%

HCL
16,427
17,842
8.26%

WIPRO
14,716
14,913
1.33%

Profit before Tax
Period
Jun '19
Jun '20
Change

TCS
10,638
9,504
-11.27%

INFY
5,167
5,792
11.42%

HCL
2,931
3,862
27.58%

WIPRO
3,074
3,092
0.60%


Infosys and HCL has enjoyed the growth of roughly 8% in the June 2020 against June 2019. TCS and WIPRO have managed to maintain their performance in line with the previous year. The two digit growth is observed in the PBT for INFY and HCL, while the WIPRO is seen at status quo position. TCS have managed to earn profit but at the negative growth rate.
In the above table, we have seen the revenue side of the companies, now let’s have a look on the expense side. In service industries, employee cost and other expenses are main components of the cost structure of any financially stable company.

Employee cost
Period
Jun '19
Jun '20
Change
TCS
20,809
22,093
5.99%
INFY
12,302
13,604
10.06%
HCL
8,398
9,091
7.93%
WIPRO
7,748
8,026
3.53%
Other expenses
Period
Jun '19
Jun '20
Change
TCS
7,326
6,205
-16.61%
INFY
4,349
3,940
-9.88%
HCL
4,183
3,675
-12.95%
WIPRO
3,816
3,514
-8.26%


 During the shift to new normal, we can observe that employee cost is increased for every company. Nearly two digit savings are seen in case of other i.e. indirect expenses for all companies.
From above 4 tables, we can conclude that 1st quarter of 2020 is overall financially enriching quarter for the IT sector as compared to the performance of June 2019.  
Let’s look at the movement in the share price of all 4 companies mentioned above along with NIFTY IT sector.




At the end of March 2020, share price of every company has observed the sharp decline resulting in same drop in the IT index. High growth in the share prices of the companies is recorded after disclosure of the quarterly positive result for June 2020.
Many high risk takers have booked the profit by purchasing the shares of IT Company in March 2020 & selling the same after disclosure of the quarter end results.
Are you thinking to start your own investment by entering into the market at right time? Please read my previous blog if you have missed it by clicking on the given link.
https://simplewaysformanagingrupaya.blogspot.com/2020/07/emotional-people-and-sensitive-market.html

(If you are good at “Marathi, regional language of Maharashtra, you can read the same blog in the Marathi by clicking below link)

https://managingrupaya.blogspot.com/2020/07/workfromhome.html


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