Beating analysts’ expectations, India’s largest IT services provider Tata Consultancy Services (TCS) reported a net profit (consolidated Indian Generally Accepted Accounting Principles — GAAP) of Rs 1,534 crore — up 19 per cent year-on-year (Y-o-Y) for the first quarter ended June 30, 2009.
Its revenue for the same period stood at Rs 7,207 crore — up 12 per cent Y-o-Y. The company’s net profit was up 15 per cent sequentially (quarter-on-quarter, or Q-o-Q), while the revenue was up 0.5 per cent Q-o-Q for the quarter under review. TCS, unlike its peers, does not provide guidance. The company incurred a foreign exchange loss of Rs 85 crore.
Apart from the broad-based growth in markets like North America and aided by a semblance of stability in the banking, financial services and insurance (BFSI) verticals, the company said strong operational execution also helped it.
In Europe, demand uptake from recently-acquired clients is helping sustain growth momentum and the pipeline remains strong, while demand from emerging markets is being driven by system integration and outsourcing engagements. But the management also accepted that currency volatility in the UK and stress due to a telecom client (BT) in the region is creating stress.
The company signed 26 new clients, of which eight were large deals. Five of these where from the US, two from Europe and one from the APAC region. The TCS management said that the deal pipeline is healthy and the company was tracking 20 odd deals.
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In very difficult market conditions, Tata Consultancy Services ((TCS) reported a growth of 19 per cent in its net profit at Rs. 1,534 crore for the first quarter of 2009-10 against Rs. 1,290.60 crore in the same quarter in the previous year. Revenues at Rs. 7,207 crore (Rs. 6,411 crore) were up 12 per cent. The company announced an interim dividend of Rs. 2 per share on the post-bonus equity base.
TCS’ growth in revenues was driven by a volume growth of 3.54 per cent while the operating profit was up 25 per cent at Rs. 1,803 crore. In spite of difficult conditions, the company’s net margins were at 21.3 per cent, up by 1.14 per cent.
Addressing the media here, TCS CEO S. Ramadorai said, “in a volatile and uncompromising environment, TCS has demonstrated its industry leadership by seizing opportunities for growth through operational excellence resulting in a stellar performance for the quarter. While we remain vigilant about the environment, TCS is leveraging its global presence and the investments made in developed and emerging markets to deliver our proposition of certainty, which resonates clearly with customers in these challenging times and helps us create long-term value for shareholders.”
Company CFO and Executive Director S. Mahalingam said, “the focus has been on managing the business with optimal efficiency, while investing in future growth. By maintaining rigor in pricing deals, managing employee and non-employee costs, collecting and conserving cash and moving work off-shore, we have achieved significant improvement in our margins and earnings per share.”
“During the quarter, we have won eight large size deals — five from the U.S., two from Europe and one from Asia-Pacific.
“While two of these orders are in the manufacturing verticals, the others are in different verticals,” said COO and Executive Director N. Chandrasekaran.
Growth was broad-based across markets and North America continued to maintain its hare of revenues aided by semblance of stability in the banking, financial services and insurance (BFSI) verticals. In Europe, demand uptake from recently acquired clients is helping TCS sustain growth momentum and the pipeline remains strong, while demand from Emerging Markets is being driven by system integration and outsourcing engagements. “We are cautious about the manufacturing, Telecom and Hi-Tech verticals. The deal pipeline is healthy and we are pursuing 20 large deals. There was a 25 basis points impact on pricing and there will be pricing pressure this year.”
In terms of verticals, the first quarter saw some stability in the core BFSI segments with the U.S. leading the trend, while the U.K. and Europe are expected to stabilize in subsequent quarters. In manufacturing, the speed of demand recovery will depend on overall economic recovery. The media and retail verticals continue to grow from new deals as well as ramp-ups of large deals closed in 2008-09.
In a first for TCS, there was negative net addition of employees at 2,119. This, according to Mr. Chandrasekaran, was because the company “was controlling recruitment as per business needs. Recruitment will be skill-based. There are no salary hikes this year but we have just announced promotions.”
Utilisation was 79.2 per cent (excluding trainees) in the first quarter and 71.3 per cent (including trainees). There was a gross addition of 2,828 employees during the quarter and the attrition rate was at 11.5 per cent. The total employee strength was at 1.42 lakh.
Ajoy Mukherjee, Vice President, Head, Global Human Resources, TCS, said, “worldwide, TCSers are playing an important role to drive growth and help customers experience certainty in this environment.” During the quarter, there were 450 gross additions outside India. The Cincinnati Global Deliver Centre in the U.S. is on track to meet its target of 250 recruits for the year.
The Hindu.
Tata Consultancy Services (TCS) overcame a tough business environment and beat street expectations by a huge margin to post a surprise
growth in revenues and net profit for the first quarter of the fiscal, but warned that it was too early to wish away the global recession and demand uncertainty.
India’s largest software exporter posted a 23% growth in net profit at Rs 1,520 crore, helped by lower costs and higher revenues from major markets, but said pricing will remain under pressure in the next one year. Revenues were up 12.4% to Rs 7,207 crore, as the US market showed signs of stability as did the troubled financial services sector.
“It is a stellar quarter, made strong by operational execution. The global economy continues to be weak and job losses are happening all over. We are watchful of the situation and do not rule out more surprises,” said TCS managing director and chief executive S Ramadorai, reflecting the mixed trend.
The company said it would pay the variable component of employee salaries in full for the quarter, but would continue with the freeze on wage hikes for now.
The company has performed better than its closest rival Infosys Technologies with a business volume growth of 3.6% during the quarter, compared with a 1.1% volume decline announced by Infosys. Pricing pressure, however, continues and the company said there was a 25 basis points decline in pricing during the quarter.
“Pricing will not go up. We will be lucky if we maintain it,” said chief operating officer and CEO-designate N Chandrasekaran.
While the financial services sector and the US saw stability, worries remained primarily in three sectors — telecom, manufacturing and hi-tech, Mr Chandrasekaran said. There were signs of this in its first quarter performance, as revenues from a large UK-based telecom client continued to decline. The UK and Europe also did not grow as well.
The TCS stock was up 3.1% to Rs 433.60 on BSE on Friday in anticipation of the better results, the software major was to announce after market hours.
The company's improved performance was also helped by lower forex losses of Rs 85 crore and increased interest and dividend income. "Our hedges for this quarter were $123 million on which we had a forex loss of Rs 85 crore. We won't be taking any new currency hedges as the rupee is still reasonably depreciated," said chief financial officer S Mahalingam.
He said cost management initiatives had delivered margin expansion all-round. Lower costs were also on account of more work moving offshore. The offshore revenues were 50.4% of its total revenues compared with 40.9% in the year-ago period. Onsite revenues, on the other hand, have declined to 44.4% of total revenues compared with 54.9% in the year-ago period.
TCS won eight large deals during the quarter with five of them coming from the US, two from Europe and one from Asia-Pacific. They are spread across different sectors -- two being from customers in manufacturing and other six from retail, pharma, utilities among others. For the first time, the company has shown a decline in the number of net hires by 2119 people, although at gross level it hired 2,828 employees.
The company has made 111 job offers in the US for its largest delivery centre at Cincinnati. The centre has a capacity of 1000 people. Ajoy Mukherjee, head of global human resources, termed it the first large-scale hiring by the company for the Cincinnati facility.
economictimes.
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