Tata Consultancy Services Ltd. Thursday exceeded market expectations with a 23% jump in fourth-quarter net profit, driven by higher non-operating income and increased demand for outsourcing of technology services.
India’s largest software exporter by revenue has consistently beaten analyst estimates over the last two years, consolidating the local technology sector’s growth story. Indian software exporters have been gaining from increased demand for technology outsourcing work as businesses in developed markets recover from the global economic slowdown.
Based on U.S. accounting standards, TCS posted a consolidated net profit of 24.02 billion rupees ($543 million) in the three months through March, compared with 19.48 billion rupees a year earlier. Profit grew 3.1% from the previous three months.
Net profit was boosted by a 39% jump in non-operating income to 2.26 billion rupees from 1.63 billion rupees a year earlier.
Revenue rose 31% to 101.57 billion rupees, as it added 39 clients during the quarter. On a sequential basis, revenue grew 5.1%.
The average of estimates in a poll of 27 analysts was for a net profit of 23.64 billion rupees on revenue of 101.53 billion rupees.
TCS follows fourth-ranked HCL Technologies Ltd. in reporting robust earnings growth, after a disappointing performance by Infosys Technologies Ltd. last week. Infosys, the second-largest IT firm, posted a lower-than-expected increase in quarterly profit and gave a weak outlook for this fiscal year, but HCL Wednesday reported a strong 34% rise in net profit thanks to a 4.8% growth in the volume of outsourcing work.
“TCS results are solid across most parameters,” CLSA Asia Pacific said in a note. The strong revenue growth should allay investor concerns on industry-wide demand, which had arisen after poor results from Infosys Technologies Ltd., the brokerage said.
The company’s shares, however, fell on profit-taking after the results and closed down 2.2% at 1,195.65 rupees. TCS shares had climbed 4.6% Wednesday, in line with a sharp rise in other technology stocks after HCL’s robust earnings. The Bombay Stock Exchange’s benchmark Sensitive Index rose 0.7% Thursday.
TCS, which doesn’t give a financial outlook, posted a tepid 2.9% rise in business volume in the fourth quarter. It cited seasonal weakness as the reason for the muted rise as clients, finalizing their budgets, pulled back spending on technology.
Still, top company executives were bullish.
“The demand environment continues to be vibrant. There are opportunities across markets and industries,” Chief Executive N. Chandrasekaran said in a statement.
India is one of the most preferred technology outsourcing destinations for companies in the U.S. and Europe. A recent report by research firm Forrester said technology spending in the U.S. is expected to increase 8% to $805 billion in 2011 and that growth would come largely from businesses looking to invest in IT projects.
TCS gets more than 80% of its revenue from the U.S. and Europe–the largest outsourcing markets in the world.
The company also said it hired 11,700 employees on a net basis during the fourth quarter and plans to hire 60,000 people this fiscal year to meet the expected rise in demand for outsourcing services. Its total staff count was 198,614 at the end of March.
CLSA said strong hiring in the just-ended quarter indicates that TCS is preparing for a big year ahead in 2011 and it validates the strength of a recovery in demand.
But, some worries remain.
An appreciation in the Indian rupee–the local currency is up 1% against the U.S. dollar in 2011–and higher staff wages due to intensifying competition in the technology sector is pressuring profit margins at TCS.
Chief Financial Officer S. Mahalingam said a stronger rupee and wage increases may weigh on operating margin in the current quarter.
The company increased wages of its India staff by 12%-14% and those in major overseas markets by about 2% to 4%, effective April 1.
Increased expenses and rising share of work from offshore centers led to fourth-quarter operating margin shrinking to 28% from 28.1% in the previous three months, Mr. Mahalingam said.
The margin, however, grew from the 27.5% it posted a year earlier.
Mr. Mahalingam said the rupee’s almost 1% decline on average against the dollar in the fourth quarter supported TCS’s margin by 0.6 percentage point.
“While certain headwinds remain in the near-term and medium-term global macro-horizon, we remain confident of our ability to mitigate challenges as well as sustain business growth,” he added.
India’s largest software exporter by revenue has consistently beaten analyst estimates over the last two years, consolidating the local technology outsourcing sector’s growth story. Indian software exporters have been gaining from increased demand for technology outsourcing work as businesses in developed markets recover from the global economic slowdown.
Based on U.S. accounting standards, TCS posted a consolidated net profit of 24.02 billion rupees ($543 million) in the three months through March, compared with 19.48 billion rupees a year earlier. Profit grew 3.1% from the previous three months.
Net profit was boosted by a 39% jump in non-operating income to 2.26 billion rupees from 1.63 billion rupees a year earlier.
Revenue rose 31% to 101.57 billion rupees from 77.37 billion rupees, as it added 39 clients during the quarter. On a sequential basis, revenue grew 5.1%.
The average of estimates in a poll of 27 analysts was for a net profit of 23.64 billion rupees on revenue of 101.53 billion rupees.
The results, however, failed to lift investor sentiment and the company’s shares slipped. The shares provisionally closed down 2.6% at 1,187 rupees, lagging the 0.5% rise in the benchmark Sensitive Index.
TCS follows fourth-ranked HCL Technologies Ltd. in reporting robust earnings growth, after a disappointing performance by Infosys Technologies Ltd. last week.
Infosys, the second-largest IT firm, posted a lower-than-expected increase in quarterly profit and gave a weak outlook for the current fiscal year, but HCL Wednesday reported a strong 34% rise in net profit thanks to a 4.8% growth in the volume of outsourcing work.
TCS, which doesn’t give a financial outlook, posted a tepid 2.9% rise in business volume in the fourth quarter. It cited seasonal weakness as the reason for the muted rise as clients, finalizing their budgets, pulled back spending on technology.
Still, top company executives are bullish.
“The demand environment continues to be vibrant. There are opportunities across markets and industries,” Chief Executive N. Chandrasekaran said in a statement.
India is one of the most preferred technology outsourcing destinations for companies in the U.S. and Europe. A recent report by research firm Forrester said technology spending in the U.S. is expected to increase 8% to $805 billion in 2011 and that growth would come largely from businesses looking to invest in IT projects.
TCS gets more than 80% of its revenue from the U.S. and Europe.
“While certain headwinds remain in the near-term and medium-term global macro-horizon, we remain confident of our ability to mitigate challenges as well as sustain business growth,” Chief Financial Officer S. Mahalingam said.
He also said that TCS’s operating margin in the fourth quarter shrank to 28% from 28.1% in the previous three months, hurt by higher expenses and increased work from offshore centers. But, the margin grew from the 27.5% it posted a year earlier.
The company added 11,700 employees on a net basis in the fourth quarter to take its total staff count to 198,614.
Source:http://online.wsj.com/article/SB10001424052748703983704576276381378414022.html?mod=googlenews_wsj
