TCS MAY GO SLOW ON WAGE HIKE IN FY09

Mumbai
The Economic Times

Tata Consultancy Services, India’s largest software exporter, has come out with conclusive evidence of the slowdown in global demand for outsourcing.

The company saw project delays in the fourth quarter to March 2008. As a result, the company’s net profit fell sequentially. Revenues lagged market expectations, pricing suffered and contracts did not ramp up as planned. Long-term prospects, however, are intact, say senior company officials.

Unveiling quarterly and full-year financial results, top TCS officials said the company would maintain the pace of hiring in spite of the short-term pain and keep gross staff addition at 30,000-35,000 in the year to March 2009.

“Ramp-ups did not happen. So the revenue projections did not follow and the net income dipped. But still, we expect good growth in 2008-09,” said N Chandrasekaran, chief operating officer.

Coming after muted financial outlooks given out by Infosys, Wipro and Satyam, TCS’ prognosis indicates that the next two quarters will see revenue growth shrink as customers battle the impact of US economic slowdown and multi-billion dollar subprime write-downs.

Indian IT companies will also see pressure on profits, given currency fluctuations and wage increases. “We will be watchful of the external environment in the US and the UK,” said S Ramadorai, CEO and managing director.

TCS is chasing around 25 deals each potentially worth over $50 million or more, Chandrasekaran said. The company also expects two or three deals in the domestic market every four months.

Perhaps in a reflection of caution, TCS said its wage increases this fiscal will be in the range of 8-10% as against 13-15% last year. Chandrasekaran also added that the company had seen a dip in pricing for projects being ramped up during the fourth quarter.

For the full year, the company posted a total revenue of Rs 22,861.4 crore, representing a growth of 22.7% under US accounting standards. Net income reached Rs 5,019.1 crore, a growth of 21.5%. However, profits fell 5.6% sequentially prompting disappointment among equity analysts.

In dollar terms, the net profit fall was even steeper at 7.25%. “The fourth quarter numbers don’t look good. But the gross addition of 35,000 employees should translate into a 23% growth in volumes. This quarter seems like temporary aberration,” said an IT analyst who did not want to be named. The TCS stock ended 0.8% lower at Rs 992.55 on the BSE, ahead of the results on Monday.