Tata Consultancy Services Profit Rises After Orders Increase

Tata Consultancy Services Ltd. (TCS), the world’s second-largest computer services provider by market value, said fourth-quarter profit rose after companies outsourced more information-technology contracts.

Net income rose 23 percent to 24 billion rupees ($542 million) in the three months ended in March, the Mumbai-based company said in a statement today. That compares with the 23.6 billion-rupee average of 31 analysts’ estimates compiled by Bloomberg. The earnings are based on U.S. accounting norms.

Chief Executive Officer Natarajan Chandrasekaran, who added 39 clients including Air Liquide SA in the fourth quarter, said demand continues to be “vibrant.” Tata Consultancy joins International Business Machines Corp. (IBM) and Accenture Plc (ACN) in signaling corporations are raising spending on computer services and advisory businesses.

“TCS’s top-10 clients’ composition is such that they’re all in really good financial health,” said Shashi Bhusan, an analyst at Prabhudas Lilladher Pvt. in Mumbai with a “buy” rating on the shares. “Their clients are able to spend more and more on I.T.”

Tata Consultancy fell 2.2 percent to 1,192.10 rupees at the 3:30 p.m. close in Mumbai. The company’s price-to-earnings ratio is the highest among the top three software writers in India, according to data compiled by Bloomberg.
Demand

The company had sales of 101.6 billion rupees in the quarter, according to the statement, which didn’t provide a year-ago number. Tata Consultancy had revenue of 77.4 billion rupees in the fourth quarter last year, according to the company’s website. A Bloomberg survey of 46 analysts had estimated sales of 101.5 billion rupees.

“The demand environment continues to be vibrant,” Chandrasekaran said in the statement. “There are opportunities across markets and industries.”

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, according to a Jan. 10 report from Cambridge, Massachusetts-based Forrester Research Inc.

U.S. businesses and government will lead the growth, spending an estimated $104 billion on IT outsourcing this year, according to an April 1 report from Forrester. Spending in the country will outpace gross domestic product growth as companies make up for orders delayed from the recession and replace older systems, Forrester said.
Volume Growth

Economists surveyed by Bloomberg last month said U.S. GDP will expand 2.9 percent in 2011, the same rate as last year.

Tata Consultancy derived 53 percent of its revenue from companies in North America, 16.2 percent from the U.K., and 10.5 percent from continental Europe in the year ended March 2010. A stronger rupee damps the value of overseas earnings during repatriation.

The company added a net 11,700 employees in the fourth quarter and had an attrition rate of 14.4 percent, according to the statement. Volume growth in the fourth quarter was 2.9 percent, the statement said.

Volume at Infosys Technologies Ltd. (INFO), Tata Consultancy’s nearest competitor, fell 1.4 percent in same period, Chief Financial Officer V. Balakrishnan said in an April 15 call with analysts.

Information-technology services companies define volume as the number of man-months workers spend on projects for clients.