Tata Consultancy Says Global Uncertainty Spurs Outsourcing Opportunities

By Ketaki Gokhale - Jul 15, 2011

Tata Consultancy Services Ltd. (TCS), India’s largest software exporter, said it continues to see strong demand for its computer services as the global economic uncertainty prompts customers to adapt and outsource more work.

“The macro uncertainty is real and it’s not going to go away in the near future,” Chief Executive Officer N. Chandrasekaran said yesterday. “Everybody is getting adjusted to the operating environment but staying pretty much focused on what they have to do. That is driving opportunities.”

Tata Consultancy, which yesterday reported a 28 percent jump in quarterly profit, joins larger rival Accenture Plc (ACN) in signaling corporations are boosting spending on computer services and consulting. Chief Financial Officer S. Mahalingam has said the company expects to sustain 20 percent sales growth for the foreseeable future as outsourcing demand grows.

“Globally, information technology spending is expected to grow this year,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai. “And as of now, that looks to be on track.”

Worldwide spending on information technology services is forecast to rise 6.6 percent to $846 billion this year, after growing 3.1 percent last year, Stamford, Connecticut-based researcher Gartner Inc. said in a report last month.
‘Pretty Strong’

Net income increased to 23.8 billion rupees ($535 million) in the three months ended June 30, from 18.6 billion rupees a year earlier, Mumbai-based Tata Consultancy said yesterday. The company stated earnings as per International Financial Reporting Standards, while profit was projected at 22.7 billion rupees under U.S. Generally Accepted Accounting Principles according to the median of 20 analyst estimates compiled by Bloomberg. Revenue climbed 31 percent to 108 billion rupees.

Demand remains strong across the company’s main markets in North America, the U.K. and Europe, which contributed 78 percent of revenue in the last quarter, Chandrasekaran said.

“We’re continuing to see business momentum,” he said. “The deal pipeline is pretty strong. If you look at the top 15 deals we’re chasing today, four of them are in U.S., four in the U.K., four in Europe, and one each in emerging markets areas.”

The software company added 24 clients last quarter, increasing the number of $50 million customers to 33 from 27, according to the statement.

Shares of Tata Consultancy climbed 2 percent, the most since June 24, to 1,146.05 rupees at the 3:30 p.m. close in Mumbai, while the benchmark Sensitive Index fell 0.3 percent.
Volume Jump

Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. and Singapore Airlines Ltd., had a 7.5 percent increase in volume last quarter from the preceding period. First-quarter volume at Infosys Ltd., India’s second-largest software exporter, grew 4 percent, Chief Financial Officer V. Balakrishnan said July 12.

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

Infosys shares fell the most in almost three months in Mumbai on July 12, after the Bangalore-based company forecast sales that missed analysts’ estimates. The software-services provider projected revenue in the year to March to range from $7.1 billion to $7.3 billion. That lagged behind the $7.5 billion average of 56 analyst estimates compiled by Bloomberg.

Tata Consultancy said it added a net 3,576 employees during the quarter, for a total of 202,190. The company remains on course to hire 60,000 workers in the 12 months ending March 31, said Ajoyendra Mukherjee, vice president for human resources.
Wage Increases

Workers left Tata Consultancy at a rate of 14.8 percent in the three months ended June, according to the statement, up from 13.1 percent for the same period last year. Infosys reported employee attrition of 15.8 percent for the quarter.

Operating margin at Infosys may come under pressure during the year ending March because of higher salaries paid to attract and retain talent, CFO Balakrishnan said July 12.

Tata Consultancy also gave its largest wage increases in three years, damping operating margin by 131 basis points from a year earlier to 26.2 percent last quarter, Chandrasekaran said.

“The uncertain global macroeconomic environment demands that we adopt an entrepreneurial approach and remain agile to capture growth opportunities as they emerge,” he said.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
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