Bloomberg News

Tata Consultancy Rises After Profit Exceeds Estimate

July 13, 2012

Tata Consultancy Services Ltd. (TCS), India’s largest software exporter, rose the most in two weeks after profit beat estimates and the company reiterated its sales will expand faster than industry average.

The shares rose 1.1 percent to 1,249.40 rupees at the close of trading in Mumbai. Tata’s closest rival Infosys Ltd. (INFO), which yesterday cut its sales forecast for the year ending in March, slumped for a second day.

Chief Executive Officer Natarajan Chandrasekaran said Tata has a “pretty healthy” pipeline of deals after reporting a 38 percent increase in first-quarter net income. Accenture Plc (ACN:US) also reported profits that exceeded estimates as customers outsource more work, a trend that prompted researcher Gartner Inc. (IT:US) to raise its growth forecast for global information technology spending earlier this month.

“TCS has been getting a lot of market share from its customers’ vendor consolidation exercises,” said Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai. “It is benefiting from a push in emerging economies, like Latin America.”

Profit in the three months ended in June totaled 32.8 billion rupees ($590 million), beating the estimate for 31.8 billion rupees. Revenue was 148.7 billion rupees, compared with the 146.6 billion-rupee median of 46 analyst estimates compiled by Bloomberg.

Order Outlook

“The deal pipeline is pretty healthy,” Chandrasekaran said in an interview with Bloomberg UTV today. “We also have a very disciplined approach in terms of what we can take on and what we can’t.”

Tata Consultancy will post sales growth higher than the forecast made by National Association for Software & Services Companies, Chandrasekaran said yesterday. The association has predicted industrywide revenue growth of as much as 14 percent in the year ending March 31.

The company won new contracts in the quarter from mobility, data, cloud computing and social media services, Chandrasekaran said at a press conference in Mumbai yesterday. The decline in the rupee helped the company mitigate the impact of wage increases, training and visa costs, he said.

The Indian rupee was Asia’s worst-performing currency against the dollar in the three months ended June, with an 8.6 percent depreciation over the period.

Tata Consultancy draws the majority of its revenue in dollars and euros from clients based in U.S. and Europe. A weakening in the rupee inflates the repatriated value of overseas sales.

“The unprecedented volatility among major currencies and the Indian rupee will continue to be a challenge in the short term,” Chief Financial Officer S. Mahalingam said in a statement. “We are taking the steps to mitigate any risks arising from this scenario.”

Infosys Lags Estimates

Infosys, India’s second-largest software exporter, cut its sales forecast yesterday after reporting first-quarter profit of 22.9 billion rupees, compared with the 24.2 billion-rupee median of 31 analysts’ estimates compiled by Bloomberg.

Sales in the year ending in March may rise to at least $7.34 billion, Infosys said in a statement yesterday, compared with an April forecast of $7.55 billion. The company sees “challenges” in the global economic situation and that’s “resulting in slower IT spends by large corporations,” Chief Executive Officer S.D. Shibulal said in the statement.

Shares of Infosys fell 1.5 percent to 2,229.80 rupees in Mumbai.

Tata Consultancy, which provides computer services and back-office support to clients including Citigroup Inc. (C:US) and Singapore Airlines Ltd. (SIA), added 29 clients during the quarter.

The company derived 53.3 percent of its revenue from companies in North America, 15.2 percent from the U.K., and 10.1 percent from continental Europe last year, according to its last annual report.

Tata Consultancy added a net 4,962 employees during the quarter for a total of 243,545, according to the statement. Workers left the company at a rate of 12 percent in the quarter ended June 30, down from 14.8 percent a year earlier.

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


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