Tata Consultancy Services Ltd. (TCS), Asia’s largest software-services provider, reported profit that beat analysts’ estimates as businesses sought savings through outsourcing and the rupee’s decline boosted overseas earnings.
Net income rose 23 percent to 28.9 billion rupees ($570 million) in the quarter ended Dec. 31 from 23.5 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement yesterday. Analysts predicted 28.3 billion rupees, the median of 35 estimates compiled by Bloomberg.
Chief Executive Officer N. Chandrasekaran said yesterday Tata Consultancy expects to win more orders as customers increase spending on optimism the “worst” may be over. The company, which won its second-biggest order from pension provider Friends Life in November, may get more deals from the U.S. where the economy is showing signs of “stability,” according to Manoj Singla of Religare Capital Markets Ltd.
“That along with a stable U.K. should help the order book,” said Singla, managing director and co-head of research at Religare. “Together, they would cover a significant portion of TCS’s revenue (WPRO) for the coming months.”
U.S. gross domestic product is projected to expand 2.3 percent this year from a 1.8 percent pace in 2011, according to the median of 70 economists surveyed by Bloomberg News from Jan. 6 to Jan. 11.
Revenue rose 37 percent to 132 billion rupees in the third quarter from 96.6 billion rupees a year earlier. The median of 45 analysts’ estimates was 132.1 billion rupees.
Currency’s Decline
The Indian rupee depreciated 7.7 percent in the quarter ended Dec. 31, the worst performance among major Asian currencies. A weaker rupee boosts the value of overseas earnings during repatriation.
Tata Consultancy dropped 0.5 percent to 1,103.95 rupees at the close of trading in Mumbai yesterday, compared with a 1.7 percent advance in the benchmark Sensitive Index. (SENSEX) The earnings were announced after the close of trading. Infosys, India’s second-largest software exporter, gained 0.8 percent.
“Our clients are increasing their spending budgets which gives us hope to be optimistic,” said Chandrasekaran. “We are expecting to close deals and the pipeline is very strong.”
Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. (C) and Singapore Airlines Ltd., added 40 customers during the quarter, ending with a total of 1,003.
Volume Gains
The company, which derived 53.3 percent of its revenue from companies in North America, 15 percent from the U.K., and 10.5 percent from continental Europe in the third quarter, had a 3.2 percent increase in volume in the three months ended Dec. 31 from the previous period.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Volume at Infosys grew 3.1 percent over the quarter, Chief Executive Officer S.D. Shibulal said Jan. 12.
Infosys shares fell the most in nine months on Jan. 12 after the Bangalore-based software-services provider cut its full-year sales forecast in dollar terms for a second time because of weaker economic growth in markets including Europe.
Sales in the year ending March 31 will range from $7.029 billion to $7.033 billion, Infosys said last week, paring an earlier projection.
‘Pruning Business’
Software-service providers including Tata Consultancy may have weaker volume growth starting from the fourth quarter, Madhu Babu, an analyst at Sunidhi Consultancy Services Pvt. said.
“Banks are pruning some of their business,” said Babu. “So the immediate impact will be that volumes will get impacted in the banking and financial services vertical.”
Worldwide spending on information technology services will grow at a slower 3.1 percent pace after climbing 6.9 percent in 2011 to an estimated $874 billion, researcher Gartner Inc. said on Jan. 5.
Tata Consultancy added a net 11,981 employees during the quarter, for a total of 226,751, according to the statement.
Workers left Tata Consultancy at a rate of 12.8 percent in the quarter ended Dec. 31, down from 14.4 percent for the same period last year. Infosys reported employee attrition of 15.4 percent for the period.
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Hari Govind at hgovind@bloomberg.net
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