Tata Consultancy Falls Most in 2 Years as Net Lags Estimates
October 18, 2011, 8:21 AM EDTBy Ketaki Gokhale and Anoop Agrawal
(Updates with closing share prices in fifth paragraph.)
Oct. 18 (Bloomberg) -- Tata Consultancy Services Ltd. declined the most in more than two years in Mumbai trading after India’s largest software exporter posted profit that missed analyst estimates for the first time in 10 quarters.
Net income rose 15 percent to 24.4 billion rupees ($497 million) in the three months ended Sept. 30, Mumbai-based Tata Consultancy said in a statement yesterday. Profit trailed the 25.2 billion rupees median of 28 analysts’ estimates, the first time since the quarter ended March 2009, according to data compiled by Bloomberg.
Tata Consultancy Chief Executive Officer N. Chandrasekaran said there was a lot of “negativism” among clients amid economic uncertainty. The recovery in the U.S. still faces “a lot of headwinds” from the sovereign-debt crisis in the euro zone to political gridlock over the budget in the world’s largest economy, according to Bank of Tokyo-Mitsubishi UFJ Ltd. economist Chris Rupkey.
“The recent European turmoil had moderated expectations substantially and TCS missed even those moderated expectations,” Nimish Joshi, an analyst at CLSA Ltd. in Mumbai, wrote in a note to clients yesterday. “Simply put these numbers are not good enough given TCS management’s super-bullish commentary,” wrote Joshi, who rates the stock “underperform.”
Shares of Tata Consultancy slumped 7.7 percent, the most since May 2009, at the 3:30 p.m. close in Mumbai. The stock was the worst performer today on the 30-company benchmark Sensitive Index, which slid 1.6 percent. Infosys Ltd., India’s second- largest software company, declined 1.6 percent.
‘Not Been Met’
“Obviously, when the stock price comes down, expectations have not been met,” Chief Financial Officer S. Mahalingam said today. “The problem is when the market expects 8 percent as opposed to 6 percent -- there could be a mismatch. Fundamentally, I don’t see a problem with the momentum, or TCS’s capability to deliver.”
Revenue rose 25 percent to 116.3 billion rupees, from 92.9 billion rupees a year earlier. The median of 35 analysts’ estimates was 117 billion rupees.
The macroeconomic situation in Europe is “worrisome,” Chandrasekaran said at a briefing in Mumbai yesterday. Still, “we are getting positive vibes from customers in terms of their IT spends going forward,” he said.
The deal pipeline in Europe was still “strong” and the company was currently pursuing two to three telecommunications contracts, Chandrasekaran said yesterday.
Tata Consultancy, which provides computer services and back office support to companies including Citigroup Inc. and Volkswagen AG, derived 53 percent of its first-quarter revenue from companies in North America, 15 percent from the U.K., and 9.9 percent from continental Europe.
‘Not as Bright’
Worldwide spending on technology goods and services by businesses and governments, which includes computer equipment and outsourcing, will grow 5.5 percent in 2012 to $2.15 trillion, slowing from an estimated 11.5 percent this year, according to a Sept. 16 report from Forrester Research Inc.
The outlook for demand in 2012 is “not as bright,” as weak economic growth in the U.S. and Europe will make business and governments more cautious about investing in technology, Cambridge, Massachusetts-based Forrester said.
Infosys Chief Executive Officer S.D. Shibulal last week said customers were delaying decisions on projects.
“IT spending reacts with a lag to macroeconomic headwinds and tailwinds, and to that extent we will see slightly weaker demand starting the next quarter,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai.
Volume Growth
Tata Consultancy added 35 clients during the quarter, for a total of 1,010 active customers. The company had a 6.2 percent increase in volume in the three months ended Sept. 30 from the previous period. Volume at Infosys grew 4.5 percent, Chief Financial Officer V. Balakrishnan said Oct. 12.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Infosys shares rose the most in more than two years in Mumbai on Oct. 12, after the Bangalore-based software-services provider raised its full-year sales guidance and posted earnings that beat analyst expectations for the first time in a year. Infosys projected sales in the year to March to range between 335 billion rupees and 340.9 billion rupees.
Tata Consultancy added a net 12,580 employees during the quarter, for a total of 214,770, according to the statement.
--With assistance from Adi Narayan 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: Anand Krishnamoorthy at anandk@bloomberg.net
