Tata Consultancy Net Beats Estimates on Outsourcing Wins

By Ketaki Gokhale - Apr 23, 2012

Tata Consultancy Services Ltd. (TCS), Asia’s largest computer services provider by market value, reported fourth-quarter profit that beat analysts’ estimates after customers outsourced more information-technology work.

Net income rose 23 percent to 29.3 billion rupees ($556 million) in the three months ended March 31, from 23.9 billion rupees a year earlier, Tata Consultancy said in a statement yesterday. The median of 44 analysts’ estimates compiled by Bloomberg was profit of 28.3 billion rupees.

Tata Consultancy joins larger rival Accenture Plc (ACN) in reporting profits that exceeded analysts’ estimates, as businesses outsource more information technology services to cut costs amid economic uncertainty. Tata Consultancy, which formed a joint venture with Mitsubishi Corp. (8058) to boost orders in Japan, is seeking to expand in new regions as sales slow down in its traditional markets of North America and Europe.

“It’s impressive,” said Pralay Kumar Das, an analyst at Elara Securities India Pvt. in Mumbai. “Their peers who had less exposure to customers in the banking, financial services industries struggled. TCS was able to hold BFSI revenue steady during a tough time in spite of having greater exposure.”

Tata Consultancy fell 2.2 percent to 1,064.25 rupees at close in Mumbai yesterday, while the benchmark Sensitive Index declined 1.6 percent. Infosys Ltd., India’s second-largest software company, lost 4 percent.
‘Deal Momentum’

Revenue rose 31 percent to 132.6 billion rupees, from 101.6 billion rupees a year earlier. That compared with the 132.3 billion rupees median of 51 analysts’ estimates.

“We have kept our focus on profitability and consolidated our market leadership,” Chief Executive Officer N. Chandrasekaran said in the statement. “Deal momentum is good, so we are pretty positive,” he said in a press conference.

Tata Consultancy, which provides computer services and back-office support to clients including Citigroup Inc. and U.K.-based Friends Life, added 42 customers last quarter. The company said it won orders from a U.S.-based insurance company and an international automotive retailer among others.

The software company derived 53.3 percent of its revenue from companies in North America, 15.2 percent from the U.K., and 10.1 percent from continental Europe in the year ended March 31, Tata Consultancy said in an analyst presentation on its website. Banking, financial services contributed 43.1 percent of annual sales, while telecommunications clients gave 10.5 percent and retail and distribution provided 12.2 percent.

Infosys (INFO) slumped the most in almost three years on April 13 after forecasting sales that missed analyst estimates.

Sales in the year that began April 1 may be between 384.3 billion rupees and 391.4 billion rupees, Bangalore, India-based Infosys said. That lagged behind the 396.3 billion-rupee median of 64 analysts’ estimates compiled by Bloomberg. Infosys also reported fourth-quarter sales that trailed estimates.
Hiring Plans

Tata Consultancy added a net 11,832 employees during the quarter, for a total of 238,583, according to the statement.

The company plans to hire as many as 50,000 graduates in the financial year that started April 1, Chandrasekaran said.

“We understand the company has adequate visibility on customer spends and its own market share within that spend,” Dipen Shah, head of fundamental research at Kotak Securities Ltd. in Mumbai, said in e-mailed comments. “TCS remains our preferred pick in the large cap space.”

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
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