Tata Consultancy Profit Beats Estimates on Outsourcing Demand

Tata Consultancy Services Ltd. (TCS), India’s largest software services exporter, reported second- quarter profit that beat analysts’ estimates after customers outsourced more information-technology work.

Net income rose 44 percent to 35.1 billion rupees ($652 million) in the three months ended September, from 24.4 billion rupees a year earlier, Tata Consultancy said in an Oct. 19 statement. The median of 36 analysts’ estimates compiled by Bloomberg was a profit of 33.8 billion rupees.

Tata Consultancy joins larger rival Accenture Plc (ACN) in signaling businesses are spending more on outsourcing to cut costs amid economic uncertainty as the Mumbai-based company won orders from Scandinavian Airlines System and Turkey’s Ziraat Bank during the quarter. Deals were getting closed and there was a good pickup of discretionary spending by customers, spurring a positive outlook for the company, Chief Executive Officer N. Chandrasekaran said on Oct. 19.

“TCS is leading industry growth,” said Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai who rates the stock accumulate. “Offshoring is happening more from Europe -- more companies have become willing to outsource core processes to cut costs.”

‘Deal Signings’

Tata Consultancy, which provides computer services and back office support to clients including Citigroup Inc. and Volkswagen AG (VOW), added 41 customers during the quarter taking the total to 1,041. The company derived 52.8 percent of its second- quarter revenue from companies in North America, 17.1 percent from the U.K., and 9.5 percent from continental Europe, it said.

Tata Consultancy fell 1.4 percent to 1,289.70 rupees at the close of trading in Mumbai on Oct. 19. The stock has gained 11 percent this year, while Infosys Ltd. (INFO), India’s second-largest software company, has dropped 14 percent.

“There have been at least 11 new deal signings and these deals have come across industries and across markets,” Chandrasekaran told reporters Oct. 19. “If you look at our engagements that we have executed and also in pipeline our investments in digital whether it is social media, big data, mobility, analytics and cloud are gaining tremendous traction.”

Researcher Gartner Inc. has raised its growth forecast for global information technology spending as companies boost expenditure on cloud computing and consulting.

Departures Drop

Tata Consultancy added a net 10,531 employees during the quarter, for a total of 254,076, according to the statement. Workers left Tata Consultancy at a rate of 11.4 percent in the three months ended Sept. 30, down from 13.7 percent for the same period last year, and the lowest level of departures in 10 quarters, it said.

To curb employee churn amid rising competition from Infosys and International Business Machines Corp. (IBM), which also hires workers in India, Tata Consultancy said in April (APR) that it increased salaries in the country by 8 percent this year.

Revenue rose 34 percent to 156 billion rupees, from 116 billion rupees a year earlier. That matched the 156 billion rupees median of 44 analysts’ estimates compiled by Bloomberg.

Infosys on Oct. 12 cut its sales-growth forecast and said higher wages and currency fluctuations will hurt profitability. The Bangalore-based company lowered its forecast for this fiscal year’s revenue to 395.8 billion rupees from a July estimate of 403.6 billion rupees.

Accenture, the world’s second-largest technology consulting company incorporated in Dublin, last month forecast full-year earnings that topped analysts’ estimates amid a gain in outsourcing bookings.

“As the global operating environment continues to evolve, there is little doubt that technology is playing a more pivotal role to shape the future of every industry than ever before,” Chandrasekaran said in the statement.

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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