Tata Consultancy Net Climbs 28% as Outsourcing Orders Rise

July 14, 2011, 10:31 AM EDT By Ketaki Gokhale

(Updates with analyst comment in fourth paragraph.)

July 14 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest software exporter, reported first-quarter profit rose 28 percent after clients outsourced more computer services.

Net income increased to 23.8 billion rupees ($535 million) in the three months ended June 30, from 18.6 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement today. The software services provider announced earnings as per International Financial Reporting Standards for the first time and there were no comparable analyst estimates.

Tata Consultancy joins larger rival Accenture Plc in signaling corporations are boosting spending on computer services and consulting. Chief Financial Officer S. Mahalingam expects to sustain at least 20 percent sales growth for the foreseeable future as technology outsourcing demand grows.

“It’s a good result definitely,” said Hardik Shah, an analyst with KR Choksey Shares & Securities Pvt. in Mumbai. “The stock was down 2 percent today, it might open tomorrow with a positive upside.” Shah said he will review his “hold” rating and share price estimate of 1,247 rupees.

Profit was projected at 22.7 billion rupees under U.S. Generally Accepted Accounting Principles according to the median of 20 analyst estimates compiled by Bloomberg. There is unlikely to be a significant difference between earnings stated under IFRS and U.S. GAAP for software exporters, said Pralay Kumar Das, an analyst at Elara Securities India Pvt. in Mumbai.

Tata Consultancy fell 2.2 percent to 1,123.70 rupees at the 3:30 p.m. close in Mumbai. The stock was the worst performer today on the benchmark Sensitive Index, or Sensex, which rose 0.1 percent. Earnings were announced after market close.

‘Demand Momentum’

Revenue climbed 31 percent to 108 billion rupees, from 82.2 billion rupees a year earlier. Sales were projected at 106.5 billion rupees according to the median of 39 analyst estimates compiled by Bloomberg.

“We see continued demand momentum,” Chief Executive Officer N. Chandrasekaran said at a media briefing. “TCS continues to partner with many customers to help them successfully execute their transformation agendas,” he said in the statement.

The software company added 24 clients during the quarter, increasing the number of $50 million customers to 33 from 27, according to the statement.

Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. and Singapore Airlines Ltd., had a 7.5 percent increase in volume last quarter from the preceding period. First-quarter volume at Infosys Ltd., India’s second-largest software exporter, grew 4 percent, Chief Financial Officer V. Balakrishnan said July 12.

Information-technology services companies define volume as the number of man-months workers spend on projects for clients.

IT Spending

“Globally, IT spending is expected to grow this year, and as of now, that looks to be on track,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai. “TCS hasn’t spoken about any indicators of a demand slowdown either in terms of a project start or project signing so far.”

Worldwide spending on information technology services is forecast to rise 6.6 percent to $846 billion this year, after growing 3.1 percent last year, Stamford, Connecticut-based researcher Gartner Inc. said in a report last month.

Still, Tata Consultancy remains “watchful” of the global economic uncertainties, Chandrasekaran said.

Infosys shares fell the most in almost three months in Mumbai on July 12, after the Bangalore-based company forecast sales that missed analysts’ estimates. The software-services provider projected revenue in the year to March to range from $7.1 billion to $7.3 billion. That lagged behind the $7.5 billion average of 56 analyst estimates compiled by Bloomberg.

Hiring Plans

Tata Consultancy said it added a net 3,576 employees during the quarter, for a total of 202,190. The company remains on course to hire 60,000 workers in the 12 months ending March 31, said Ajoyendra Mukherjee, vice president for human resources.

Workers left Tata Consultancy at a rate of 14.8 percent in the three months ended June, according to the statement, up from 13.1 percent for the same period last year. Infosys reported employee attrition of 15.8 percent for the quarter.

Operating margin at Infosys may come under pressure during the year ending March because of higher salaries paid to attract and retain talent, CFO Balakrishnan said July 12.

Tata Consultancy also gave its largest wage increases in three years, damping operating margin by 131 basis points from a year earlier to 26.2 percent last quarter, Chandrasekaran said.

“The uncertain global macroeconomic environment demands that we adopt an entrepreneurial approach and remain agile to capture growth opportunities as they emerge,” he said.

--With assistance from Rajhkumar K Shaaw in Mumbai. Editors: Suresh Seshadri, Subramaniam Sharma.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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