TCS BEATS RE BLUES, Q3 NET UP 19 PERCENT AT Rs 1,327 CRORE

Mumbai
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Big deals across sectors, verticals and geographies — such as the recent $1.2 billion one with The Nielsen Company — are helping India’s largest IT services provider Tata Consultancy Services (TCS) comfortably stride towards becoming an over $5 billion company by the end of the financial year 2007-08.

In line with market expectations, the company posted a consolidated net profit (Indian GAAP) of Rs 1,327 crore for the third quarter ended December 31, 2007 — up 19 percent over the corresponding quarter last financial year.

Its revenue figure of around $1.5 billion (Rs 5,923 crore) was an increase of 22 percent year-on-year (YoY). Compared to the trailing quarter, its revenue increased 5 percent while its net profit rose by 6 percent.

Compared to Infosys Technologies, TCS scored on the volume growth front while Infosys had an edge with its net profit growth. Analysts, however, are currently more concerned with indications of the IT budgets for CY2008 rather than the third quarter performance.

Margin improvement: TCS improved its operating margins despite a 2.3 percent appreciation in the rupee against the US dollar during the quarter under review.

The company had about $3.1 billion outstanding in hedges at the end of the quarter under review but the forex impact due to the rupee appreciation was 1.61 percent (primarily due to the Euro appreciation against the rupee).

However, the company’s volume growth rose by 5.31 percent; pricing by 0.53 percent; and effort mix (onsite:offshore) by 0.81 percent — all ensuring an overall margin improvement of 0.33 percent to register an EBIDTA margin figure of 24.61 percent.

“Our diversified business model continues to sustain the growth momentum despite several external challenges. There is growth momentum across geographies with contributions from all business units,” said CEO & MD S Ramadorai.

S Mahalingam, chief financial officer, noted that the company “continues to drive margins through rate and productivity efficiencies and keep a strong handle on costs”.

Verticals and geographies growing: The banking and financial services (BFSI) vertical grew strongly in the third quarter with the revenue share increasing sequentially. Travel and hospitality and the energy and utility verticals also grew faster than the average company growth rate.

Dependence on US revenues has declined to 49.5 percent. Large IT outsourcing engagements are gaining strength in established and newer geographies like Asia Pacific, India, West Asia and Africa as well as Latin America.

Hiring: TCS has added over 28,000 employees in the current financial year, and has already made over 22,000 campus offers for the next year. TCS is the largest IT employer in India with 108,229 employees at the end of Q3. It made a gross addition of 7,522 employees (employee utilisation stands at 77.7 percent in Q3).

The company continues to maintain the lowest attrition rate in the industry at 12.2 percent. Foreign nationals formed 8.3 percent of the total employee base and 28 percent were women. Around 49 percent of the employees have over three years of experience.

Outlook: TCS does not provide any guidance. The management, however, asserted it was “cautiously confident of the future and does not see any negative news at this point of time”.

N Chandrasekaran, Chief Operating Officer, said: “We have a strong pipeline (25 deals including $50 million and some over $100 million) across geographies and verticals to sustain our growth,” said.

“Our investments in Latin America, India, APAC have given us pole position in these emerging markets, while our full-services play and global network delivery model drives growth in established markets like USA, UK and Europe.”

Preference issue: TCS has, meanwhile, proposed to issue and allot non-convertible redeemable preference shares up to a nominal value of Rs 100 crore to the promoters of the Company, Tata Sons, subject to the approval of shareholders.

Ahead of the results, shares in Tata Consultancy closed up 0.7 percent at Rs 944.50 in a Mumbai market that fell nearly 2 percent.