Posts Tagged ‘TCS’

Gulf between Infosys & TCS narrows in September quarter

October 22nd, 2014

Infosys, India’s second-largest IT services exporter, has narrowed the gulf with its rival Tata Consultancy Services (TCS) in certain growth parameters like organic growth and operating profit margins in the just concluded September quarter, setting the stage for an interesting battle between the two Indian IT majors.Outsourcing34

TCS has been consistently maintaining a definite lead over Infosys in all the key metrics like revenue, profit, OPM, attrition rates and there were no signs of any closure of the gap between the two in the past many quarters. However, at the end of second quarter of FY15 the revenue growth reported by Infosys was 3.1% while it stood at 3.6% for TCS, without taking into account the inorganic revenue from the buyout of its stake in its venture with Mitsubishi. In the same vein, the gap between the two in terms of operating profit margins (OPMs) closed down to just 0.7% when compared to 1.2% in the preceding sequential quarter.

The surprising aspect in this quarter was the differing performance by Infosys and TCS with regard to market expectations. Infosys, which positively surprised the markets with its second-quarter performance, also received the boost with the presence of new CEO, Vishal Sikka, who is also the first non-founder to head the company providing an indication of the way forward for the company. As BNP Paribas, a brokerage house in its note following the results, said, “The new CEO’s strategy is aimed at transforming Infosys into a ‘next-generation’ services company, more details of which are due by April 2015. Infosys believes a successful shift could mean revenue growth of 15-18% and an EBIT margin of 25-28% in the long term, which are significantly higher than current levels. “

Sikka during investors calls post the results spoke about the increasing use of automation, artificial intelligence by Infosys while bringing new paradigm in terms of design thinking and reskilling of their employees. There are enough strong indications that Infosys would be able to achieve its revenue growth guidance of 7-9% for FY15.

However, it would be a long haul for Infosys to match up with TCS, as the latter over the last two years has consistently maintained a very steady growth rate outperforming the industry benchmark. Today, the revenue gap between Infosys and TCS for the second quarter of FY15 stood at $1.7 billion while the net profit difference being $361 million. At one point of time though Infosys had lower revenue than TCS, its OPMs and profit were much higher.

Industry observers say that TCS has set the pace for others in the Indian IT industry. Pradeep Mukherji, president, Avasant, an IT outsourcing advisory firm, said, “TCS is one of the most robust companies in terms of their depth in leadership, range of offerings and the extent of geographic reach. Their DNA is completely different.”


TCS slumps nearly 9 percent, earnings miss estimates

October 20th, 2014

Tata Consultancy Services Ltd(TCS.NS), India’s biggest software services exporter, posted a 13.6 percent rise in quarterly net profit, but missed analyst estimates on weakness in outsourcing demand in Latin America and in some industrial sectors.Employees of Tata Consultancy Services (TCS) work inside the company headquarters in Mumbai

TCS closed down 8.85 percent on Friday, marking its biggest single-day fall since May 2009 after disappointing earnings while sequential U.S. dollar revenue growth also lagged estimates.

The TCS earnings announcement came after market hours on Thursday.

TCS is part of a $100 billion-plus Indian outsourcing sector that generates about 90 percent of its revenue from providing services such as IT network installation and the development of software applications for overseas clients.

The company has been growing at a faster pace than its local rivals Infosys Ltd (INFY.NS) and Wipro Ltd (WIPR.NS) in the last couple of years, helped by a stable management and its focus on emerging economies that are stepping up spending on IT services.

“The expectations from Tata Consultancy were very high after Infosys posted strong numbers, so the company missing estimates has come as a disappointment,” said Sarabjit Kour Nangra, vice president of research at Mumbai-based Angel Broking.

“But I don’t see any concern about TCS’s short-to medium-term growth outlook because the main operating metrics like client additions and operating margins are healthy. The outlook for outsourcing demand is also strong.”

Infosys, India’s second-largest IT services exporter, last week posted a forecast-beating 28.6 percent rise in quarterly profit and maintained its forecast for sales growth for the year ending in March, meeting analyst expectations.

During the quarter ended Sept 30, TCS made a profit of 52.88 billion rupees ($854.46 million), up 13.6 percent from a year earlier but below the average analyst forecast of 53.84 billion rupees, according to Thomson Reuters data.

Sales of the company, which counts Cisco Systems Inc (CSCO.O) and Hewlett-Packard Co (HPQ.N) among its clients, rose 13.5 percent to 238.2 billion rupees, which also fell short of analysts’ estimates of 246.6 billion rupees.


Nomura said in a research note that the below-expected sales growth in its fiscal second quarter would make it tough for TCS to meet its guidance that the revenue growth this fiscal year would be better than last year’s 16.2 percent rise.

TCS Chief Executive N. Chandrasekaran on Thursday blamed the earnings expectation miss on an unexpected growth slowdown in Latin America, which had previously been a growth driver among its emerging markets.

He said TCS, part of the salt-to-steel Tata conglomerate, was “positive about the future” as it shifts towards higher margin services including digital technologies like mobile applications and cloud computing.

TCS expects these services to generate at least $5 billion in sales in the next five years. Revenue from digital services at present makes up less than 10 percent of the company’s annual revenue, which was $13.4 billion in the last fiscal year.

“We are in the growth mode and are pretty positive about the future,” Chandrasekaran said, adding TCS sees a strong outsourcing deal pipeline and stable pricing for its services in the next fiscal year.

Separately, TCS also said on Thursday its board had approved a merger with subsidiary CMC Ltd (CMC.NS), which gets bulk of its business from the local market. TCS already owned about 51 percent stake in CMC.


Tata Group consolidates IT business, CMC to merge with TCS

October 17th, 2014

Tata Consultancy Services (TCS), the flagship software unit of the Tata Group, is merging the listed CMC with itself as part of the group’s renewed efforts to consolidate its IT businesses under one single entity. This will be the outsourcing giant’s biggest merger deal after it amalgamated Tata Infotech with itself in 2005, the first sign of the group’s attempt to combine its software services businesses housed under different entities. The other IT companies within the group are the listed Tata Elxsi, in which the group holds 45%, and the closely-held Tata Technologies.Outsourcing29

Tata group acquired CMC through the government’s divestment programme in 2001, when TCS was a division of Tata Sons, the main holding company of the conglomerate. TCS became a standalone company just before it went public in 2004 and at that time the group’s holding in CMC was transferred to TCS. Since then the two companies, although in similar businesses, have remained as separate entities. At present, CMC has revenues of over Rs 2,000 crore and employs about 6,000 people.

Over the years there were whispers of CMC merger but TCS had dismissed those talks as market speculation. On Thursday, the $13-billion IT major announced it is consolidating CMC’s operations in a single company with a swap ratio of 79 TCS shares for 100 CMC shares. TCS holds 51% in CMC which has a market capitalisation of Rs 6,628 crore and the merger, subject to regulatory approvals, will see Tata Sons’ stake in TCS go down marginally to 73.4% from 73.9% now. The valuation for the deal was done by BSR & Associates, a unit of KPMG.

N Chandrasekaran, CEO & MD, TCS, said that TCS does significant work with CMC and the merger will boost its domestic presence. However, in terms of numbers there won’t be any change as CMC’s earnings are reflected in TCS’ consolidated figures. The merger will rationalise cost structure and lead operational efficiency, particularly in marketing of services, Chandrasekaran said, adding that there will not be much savings on costs. The new role for R Ramanan, CEO &MD, CMC, will be known in the coming months.

CMC (formerly Computer Maintenance Corporation) started operations in 1975, and it was only three years later when IBM wound up its operations in India under pressure from the then Morarji Desai government, CMC took over the maintenance of IBM installations at over 800 locations, which gave the company a strong foothold in then nascent IT business in the country. In 2001, in a hotly-contested divestment programme under the BJP-led NDA government, Tata emerged as the successful bidder among 15 which included then global IT giants Compaq and HP, and also homegrown majors like Wipro, Reliance Industries and Aditya Birla group.


Capgemini, NetSuite launch ‘virtual company’ BPO toolkit

October 17th, 2014

French IT consulting firm Capgemini and cloud-based software provider NetSuite have teamed up to offer out-of-the-box, pre-configured software and applications to startups and organizations looking to scale or expand into disruptive environments. Outsourcing28

The bundled business process outsourcing (BPO) toolkit works by combining outsourced services, processes, technology and infrastructure to offer a pre-configured back office in the cloud.

It includes services such as HR and finance that the companies say can integrate seamlessly with the parent company’s existing technology. By doing so, users can lessen their go-to-market timeframe and focus on core business priorities, according to the two companies.

For example, when entering a new market, organizations are typically faced with a barrage of personnel and IT requirements. But with this virtual company model, organizations can cherry pick which business processes they wish to automate and outsource, theoretically increasing their agility when it comes to expansion.

“Many organizations generate new ideas but struggle to industrialize them due to the challenges of the administrative burden,” said Christopher Stancombe, CEO for Capgemini’s business process outsourcing. “Our Virtual Company solution was created in response to this growing demand for outsourced technology platforms to aid speed to market and reduce set-up costs. This is where the BPO market is evolving – helping solve some of the most pressing challenges in business today, by understanding what really affects the performance and culture of an organization.”


India IT Powerhouse Tata Consultancy’s Income Rises 17.8%, Continues To Beat Market

October 17th, 2014

India’s largest information technology services provider, Tata Consultancy Services, posted a 17.8% gain in year over year net income on Thursday to keep Tata a market beater again this year.Outsourcing29

Despite slower economic growth in Tata’s core markets, the need for companies to use new technologies to gather and analyze data to stay competitive has kept outsourcing firms growing strong.

Tata remains a dominant player in the trillion dollar global IT services market.

The Mumbai based company said that the quarter ending September 30 registered net income of $872 million, up from $845 million in the previous quarter and $740 million in the same quarter last year. Shares of Tata Consultancy declined on Thursday by a little over half a percent, but are up 24.37% year-to-date. By comparison, the Wisdom Tree India (EPI) exchange traded fund, one of the most popular India trades on the NYSE, is up 23.21%. Meanwhile, Tata rivals Infosys and Wipro are mixed and underperforming. Infy is up 11.33% after getting clobbered in 2013. Wipro is down 4.53%. Tata Consultancy, which is part of the Tata Group of companies, has steadily outperformed its rivals and the Bombay Stock Exchange Sensex index over the last 10 years.

“We are focused on supporting business growth by optimizing our operations and maintaining margins in our desired range. Our cash generation has been strong resulting and we continue to make investments for business growth,” said Tata Consultancy CFO Rajash Gopinathan in the company’s press release to the market today.

IT firms have been on wobbly ground over the last two years, particularly those with deep stakes in the eurozone. Tata has managed to outperform because of its closer ties with the Indian government, providing IT services to state entities, and a solid management team to back it up. FORBES ranks Tata Consultancy as one of the top 100 innovative companies in the world.  Last year, buy and sell side analysts ranked Tata Consultancy CEO Natarajan Chandrasekaran as the best IT executive in Asia, according to Institutional Investor.

As an equity investment, Tata has become the go-to IT stock for international investors with access to Bombay listed shares, while both Infy and Wipro, listed on the NYSE, have been undperforming on a regular basis. Infy has only started to beat the Sensex in the last six months.

Tata’s growth in its second quarter was “broad-based”, it said, with all industries served by the IT outsourcer growing on a sequential basis. The impact of the integration of newly merged entity in Japan also provided additional growth to units like manufacturing and technology. Core markets
like India, the U.S. and Europe also grew.

Tata said that revenue for the quarter hit $3.9 billion compared with $3.6 billion in the quarter ending June 30 and $3.3 billion in the same period a year ago.

Tata Consultancy is one of the world’s largest IT outsourcing firms, employing over 310,000 people worldwide including in the U.S. Last year it posted sales of around $13.5 billion.


IT: Prefer Infosys, TCS, Wipro says Prabhudas Lilladher

October 17th, 2014

According to ISG forecast, broader market ACV lagged, but remains strong YTD . The weakness was in‐line with expectation, and they expect to see a recovery in Q4CY14 with continued strength in CY15. They expect 2014 ACV to exceed 2013 by double digits despite tepid quarter.Outsourcing28

ISG highlighted about the challenges faced by IMS players as cloud infrastructure providers are denting the existing businesses of IMS players. However, ADM+BPO proposition sees a renewed sign of life as Digitization adoption drives newer spends in the segments.

Continental Europe continues to see stronger adoption for Outsourcing/Offshoring from geographies like France, Italy, Spain etc. However, the current trend is very different from earlier wave of Anglo‐Saxons outsourcing wherein India became the focal point of outsourcing centres. Current drive of outsourcing from Continental Europe is pushing for global delivery models  with presence in newer locations like Poland, Brazil, Philippines, etc. But, we do not see any loss in competency for Indian Vendors as they swiftly adopt for GDM.

Among the verticals, Financial Services grew strongly in Americas as new scope contracts return. In APAC and EMEA, manufacturing has witnessed strong growth.

Among the mid‐caps in our coverage universe, NIIT Tech and KPIT Technologies got mentioned in “The Breakthrough 10 Sourcing Standouts” (companies with revenue less than $2bn) in Americas.

CY14 has panned out in‐line with the expectation in terms of deal closures. According to ISG, a build‐up of transaction is likely to yield one of the strongest year in the last one decade. We see Digitization drive as an encouraging trend for Infosys that is in‐sync with their current commentary. We prefer Infosys  , TCS  , and  Wipro  among tier‐1


Infosys needs to keep foot off the accelerator

October 14th, 2014

Infosys knows what it is to lose form. Once the leader of India’s IT outsourcing industry, over the past five years the company has trailed rival Tata Consultancy Services. In that time, TCS has returned 450 per cent and lifted its return on equity by 6 percentage points to 44 per cent. Infosys’ ROE has fallen by almost the same amount, to 19 per cent. Its stock has doubled, but trails TCS’s badly.Outsourcing17

Second-quarter numbers released on Sunday may herald a comeback for the old-timer.

Net income was up nearly a third from the year before, beating analysts’ estimates. And despite volatile currencies, Infosys maintained its ­full-year target of high single-digit revenue growth in US dollar terms. The stock bounced 7 per cent.

A large part of the improvement has come from a pick-up in orders, lifting profitability. Gross margins fell steadily over the three years from September 2010 and hit a low of 35 per cent a year ago. Barclays attributes this mostly to over-hiring on optimistic demand forecasts.

As orders recover, margins in the second quarter have already improved 3 per cent from the lows.

Infosys appointed a new chief executive early this year, Vishal Sikka. Although he has been welcomed as the first non-founder to make it to the top, concerns still linger regarding his focus on innovation. Infosys has about $US5 billion ($5.7 billion) in net cash on its balance sheet. And Mr Sikka says he plans to invest in growth. But previous chiefs’ attempts to move into “higher value” businesses fared poorly. After a shaky couple of years, steady execution is more welcome than a strategic shift. The company did increase its interim dividend by half, paying out 60 per cent of second-quarter earnings. But this can be paid out of cash flow – leaving the cash balance, and worries about a big merger, undisturbed. Mr Sikka thinks Infosys needs two more years to reach full speed. He should make sure the acceleration is safe and steady.


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