Tata Consultancy Posts Record Profit on Software Orders

Tata Consultancy Services Ltd., India’s largest software exporter, reported record third-quarter profit after winning orders from Deutsche Bank AG and Hilton Worldwide Inc.

Net income rose 30 percent to 23.7 billion rupees ($520 million) in the three months ended Dec. 31, from 18.2 billion rupees a year earlier, Tata Consultancy said in a statement yesterday. The average of 31 analysts’ estimates compiled by Bloomberg was for a profit of 21.9 billion rupees. The earnings are based on Indian accounting standards.

The Mumbai-based company, which provides computer services and back office support to clients including Citigroup Inc. and General Electric Co., boosted revenue 26 percent in the past three months on higher demand. Tata Consultancy joins Accenture Plc, the world’s second-largest technology-consulting firm, in signaling corporations are boosting spending on software services and advisory businesses.

“The macro environment is quite conducive for Indian IT players,” said Rahul Jain, an analyst with Dolat Capital Market Ltd. in Mumbai. “We largely remain optimistic and bullish on the IT sector.” Jain has an “accumulate” rating on Tata Consultancy shares.

Tata Consultancy gained 1.5 percent to 1,137.4 rupees in Mumbai yesterday, compared with a 0.1 percent advance by the benchmark Sensitive Index, or Sensex. The stock advanced 55 percent last year, outperforming the Sensex’s 17 percent rise. Infosys Technologies Ltd., India’s second-largest software company, gained 32 percent in 2010.

Strong Demand

“Demand environment continues to be strong,” said N. Chandrasekaran, chief executive officer of Tata Consultancy, in the statement. “We are optimistic that demand for our solutions will continue to be strong going forward.”

The company added 35 clients during the quarter, according to the statement. It won a multiyear information technology consulting contract from Hilton and a software implementation project from Deutsche Bank.

Worldwide spending on IT outsourcing by businesses and governments will grow 7.1 percent this year to $254 billion, after increasing 2.8 percent last year, Forrester Research Inc. said in a Jan. 10 report.

U.S. businesses and government will lead the growth, spending an estimated $101 billion on IT outsourcing this year, according to a Dec. 14 report from the Cambridge, Massachusetts- based researcher. Spending in the country will outpace gross domestic product growth as companies make up for orders delayed during the recession and replace older systems, Forrester said.

Economists surveyed by Bloomberg last month said U.S. GDP will expand 2.6 percent in 2011.

Revenue Gains

Tata Consultancy’s revenue in the quarter rose to 96.6 billion rupees, from 76.5 billion rupees a year earlier. That compared with the 96 billion rupees average of 46 analyst estimates compiled by Bloomberg.

Profit was also boosted by a foreign exchange gain of 521.6 million rupees, compared with a currency loss of 354.7 million rupees in the year earlier period, the company said.

The Indian rupee averaged 44.8574 against the U.S. dollar in the last quarter, 3.8 percent stronger than the 46.6453 a year before. Tata Consultancy uses foreign currency forwards and options contracts to hedge for currency risk, the company said in its annual report in April.

The company expects the rupee to average 45.07 per dollar in the current quarter, Chief Financial Officer S. Mahalingam told reporters yesterday.

Infosys’ Profit

Last week, Infosys posted a third-quarter profit that missed analysts’ estimates and Chief Executive Officer S. Gopalakrishnan said weaker economic recovery in developed markets, high unemployment and the risk of sovereign defaults may undermine industry growth.

Tata Consultancy added a net 12,497 employees during the quarter, for a total of 186,914, according to the statement. The company has exceeded its hiring target set for the fiscal year because of business demand, according to the statement.

Workers left Tata Consultancy at a rate of 14.4 percent in the third quarter. The company plans to hire as many as 15,000 employees in the fourth quarter.

The software exporter derived 55 percent of its revenue from companies in North America, 15 percent from the U.K., and 8.9 percent from continental Europe last year.