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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Stocks in India Gain for First Day in Four as Valuations Near Two-Year Low

By Rajhkumar K Shaaw - Jul 13, 2011

Indian stocks climbed, halting a three-day decline, as overseas investors bought shares after valuations approached a two-year low and a drop in industrial output prompted speculation the central bank will pause after the longest stretch of rate increases in a decade.

DLF Ltd. (DLFU), the nation’s biggest developer, advanced 1.6 percent. Mahindra & Mahindra Ltd. (MM), the largest maker of sport- utility vehicles and tractors, added 1.4 percent.

The Bombay Stock Exchange Sensitive Index, or Sensex, gained 126.2, or 0.7 percent, to 18,537.77 at 9:48 a.m. in Mumbai. The gauge lost 3.5 percent in the three days through yesterday and traded at 14.9 times estimated profit, within 10 percent of the lowest level since May 9, 2009, data compiled by Bloomberg show. Foreign funds have been net buyers of domestic stocks for 13 sessions, the longest stretch in three months.

“Indian equities continue to be driven by foreign fund flows,” said R.K. Gupta, managing director of Taurus Asset Management Ltd., which has $1.1 billion in assets. “The slowdown in industrial output may force the central bank to pause on rates, which could act as a positive and bring some relief for the markets.”

The Reserve Bank of India meets on July 26 to set policy after raising rates 10 times since March last year to rein in prices, joining countries including China and South Korea in battling accelerating living costs. The country’s inflation rate quickened to 9.06 percent in May from 8.66 percent in April. The government releases June price figures tomorrow, as well as food-cost data for the week ended July 2.
Factory Output

Industrial production growth unexpectedly slowed in May, the government said yesterday. Output at factories, utilities and mines rose 5.6 percent from a year earlier, the least since August 2010, following a revised 5.8 percent gain in April, The median of 27 estimates in a Bloomberg News survey was for an 8.5 percent jump.

The S&P CNX Nifty Index rose 0.8 percent to 5,568.25 and its July futures traded at 5,572.35. The BSE 200 Index added 0.8 percent to 2,299.29.

DLF increased 1.6 percent to 224.2 rupees, paring this year’s drop to 23 percent. Mahindra & Mahindra gained 1.4 percent to 712.85 rupees.

Overseas funds purchased a net 4.74 billion rupees ($107 million) of Indian stocks on July 11, raising total investment in equities this year to 95.7 billion rupees, according to data on the website of the Securities and Exchange Board of India.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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Essar May Expand Supertanker Fleet as India Buys More Mexico Oil

By Karthikeyan Sundaram - Jul 11, 2011

Essar Shipping Ltd., controlled by billionaire Ruia brothers, plans to add as many as a dozen second-hand supertankers to benefit from Indian refiners’ rising need to haul crude oil from Mexico and Venezuela.

“We’re looking at the emergence of long-term contracts between Indian oil companies and suppliers from Latin America,” Managing Director A.R. Ramakrishnan said in a July 7 interview at the company’s headquarters in Mumbai. “We see a great scope for import of crude oil to feed all the refining expansion taking place in India.”

Essar may purchase six very large crude carriers, or VLCCs, as part of its tanker-fleet expansion, Ramakrishnan said without providing a timeframe or investments. Indian refiners including Reliance Industries Ltd. (RIL) are stepping up imports from Latin America as they add capacity to process the heavier and cheaper grades of crude from the continent.

“Diversification of the route network will definitely help shipping companies,” said Jyotsna Sawdekar, an analyst with Mumbai-based Jaypee Capital Services Ltd. “Going forward, charter rates are also expected to rise for VLCCs.”

The shipping line, spun off from Essar Shipping Ports & Logistics Ltd. (ESRS) in May, has 26 vessels, including two VLCCs and five capsizes, according to its website. Essar will also start taking delivery of 12 new bulk carriers valued at about $450 million in September, Ramakrishnan said.
$99 Billion

India, which imports almost 80 percent of its oil, spent a record $99 billion buying crude from overseas in the year ended March 31, as refiners expanded capacity to meet rising energy demand in the world’s second-fastest growing major economy.

Indian refiners including Indian Oil Corp. and Essar Oil Ltd. are also adding capacity to process heavy grades of crude oil, which are cheaper than light varieties. Essar’s expanded refinery will process 90 percent of heavy grades, Managing Director Naresh Nayyar said yesterday.

Reliance, owner of the world’s largest refining complex, boosted crude imports from Latin America 78 percent last year, according to JBC Energy GmbH, as processing the cheaper grade of oil helps boost refining margins. Bulk of the supplies were from Venezuela, the Vienna-based industry consultant said.

Essar, controlled by brothers Shashi and Ravi Ruia, separated the shipping business from its port operations so that the management can increase focus on the two units’s expansion plans. Essar Ports Ltd. began trading on May 31, while the listing of Essar Shipping is pending.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Vipin V. Nair at vnair12@bloomberg.net
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Asia Doubles Silicon Factories, Pursues Gain Through Glut as Prices Dive

By Bloomberg News - Jul 10, 2011

Asia’s largest makers of silicon for solar panels are almost doubling their factory size this year just as surplus production sends prices tumbling for the main raw material for the $35 billion industry.

Korea’s OCI Co. and GCL-Poly Energy Holdings Ltd. (3800) of China said they’ll increase capacity to a combined 88,000 metric tons a year from 48,000 tons. Global demand for the material, known as polysilicon, is growing at less than a third of that rate, and spot prices fell 32 percent in the second quarter, Bloomberg New Energy Finance estimated.

Asians are deploying equipment to refine silicon crystals more quickly than Western competitors. They anticipate gaining share from the world’s largest suppliers, Hemlock Semiconductor Corp. of the U.S. and Germany’s Wacker Chemie AG (WCH), as customers increasingly demand lower prices for the key material used in panels to convert sunlight into electricity.

“They want to grow ahead of the competitors to win in the long term,” said Chris Park, a Hong Kong-based senior analyst of Moody’s Investors Service. If they have enough liquidity, they should perform well in coping with a price slump, he said.

The situation mirrors the Asian investment boom and price slashing of the last few years among their customers, which make solar cells and panels. That resulted in Chinese companies, led by JA Solar Holdings Co., capturing more than half the global photovoltaic panel market for the first time in 2010.
Shares Tumble

Several European suppliers were pushed aside. In Germany, Solarworld AG (SWV) shares lost 80 percent through June 30 from their record in November 2007.

China will boost its market share in the polysilicon market to about 42 percent of production capacity this year from 39 percent in 2010, New Energy Finance estimated.

Solar-grade silicon fell to $53.40 a kilogram ($24.27 a pound) in June, the lowest in more than six years, from $78.90 in March, according to the London-based research company. The material, which cost as much as $450 a kilogram in mid-2008, may sell for $40 to $50 for the rest of 2011, said Jenny Chase, New Energy Finance’s chief solar analyst.

Wacker isn’t concerned about a glut or short-term price plunges “because we sell mostly with long-term contracts,” said Christof Backmair, a company spokesman in Munich. He said almost all output to 2015 has been sold. “We don´t have idle capacity and are doing our utmost to avoid it.”
OCI, GCL-Poly

A spokesman at Seoul-based OCI, who asked not to be named, said the company is on schedule to expand the capacity, regardless of fluctuating prices. Wang Manjian, a GCL-Poly spokesman in Hong Kong, declined to comment. Hemlock officials couldn’t be reached for comment.

“In the long run, larger scale will help us reduce production costs and gain market share,” said Kevin He, investor relations manager of Daqo New Energy Corp. (DQ), China’s fourth-largest polysilicon producer. “All the companies will be affected when margins are squeezed.”

China’s Daqo, based in Wanzhou, Chongqing, is capable of making 4,300 metric tons of polysilicon a year. In March, it started building a 3,000-metric ton plant in Shihezi, Xinjiang, to boost output as much as 70 percent.

That contrasts with the average 19 percent capacity expansion under way this year at the world’s four biggest non- Asian suppliers, which are Hemlock, Wacker, MEMC Electronic Materials Inc. (WFR) of the U.S. and Norway’s Renewable Energy Corp., according to a Bloomberg survey.
‘Crashing Prices’

As a group, polysilicon suppliers have overshot their market, said Chase of New Energy Finance.

“This is oversupply, although with crashing prices we will probably see more sold than most analysts expect,” said Chase, who forecast 176,000 tons produced this year, up 34 percent.

Besides the economies of scale, Daqo’s production costs will decline by as much as a quarter to $24 per kilogram by adding the Shihezi factory as the company can enjoy cheaper electricity in Xinjiang, where the region has abundant coal, He said. A competitive cost structure is important in an industry that consumes more energy than steel, Daqo’s He said.

“This is a period to deplete inventories,” He of Daqo said. “We can still make profit as the spot price falls to about $50 per kilogram.”

Price declines came faster than expected as European governments cut solar-power incentives, crushing orders for solar panels and its raw materials, said Charles Yonts, a Hong Kong-based analyst in CLSA Ltd.
‘Strong Demand Pickup’

“The situation is starting to improve, and I expect a strong demand pickup in both Europe and the U.S., followed by Japan and China, in the second half of the year,” Yonts said.

Asian polysilicon makers will “replicate the success of Chinese solar-panel makers that supply a majority of the global market,” Chang Yu, project manager of Chinese Renewable Energy Industries Association, said. “They have a better financing environment and access to land” than Western incumbents including Hemlock and Wacker, Chang said.

Golden Concord Group Ltd., the parent of GCL-Poly, last month secured five-year loans from state-run China Development Bank Corp. to ensure the unit will innovate technology, improve production capacity and reduce production costs.

Hong Kong-based GCL-Poly in May agreed to borrow 10 billion yuan ($1.5 billion) from the Bank of Jiangsu Co. That’s almost three times the 386 million euros in long-term bank debt on the books of Wacker, Europe’s biggest producer, at Dec. 31.

GCL-Poly is waiting for a suitable time to sell senior notes, spokesman Wang Manjian said on June 14. The company aims to achieve 46,000 metric tons of polysilicon capacity by the end of this year, exceeding Wacker’s 42,000 target.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
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