Tata Consultancy Sees Strong Order Pipeline Spurring Revenue

Tata Consultancy Services Ltd. (TCS), India’s largest software-services exporter, expects a “strong deal pipeline” with new business from all of its key markets helping to boost sales this year.

Orders for the year started April 1 are “looking quite good,” especially in the financial services and manufacturing industries, and spending by telecommunications companies will recover, Chief Executive Officer N. Chandrasekaran said yesterday.

Tata Consultancy, which reported net income that rose 22 percent in the three months ended March, joins larger competitor Accenture Plc (ACN) in signaling that demand for outsourced software services remains buoyant, helping maintain prices. Spending on information-technology services worldwide this year is estimated by Gartner Inc. to climb at a faster pace than 2012.

“They’re being able to dictate terms to buyers who are in desperate need of solutions to optimize their own efficiency,” said Anurag Rana, an information-technology analyst with Bloomberg Industries. “The comments were most important as they echoed what Accenture announced and are providing stability to the industry.”

Shares of Tata Consultancy fell 0.3 percent to 1,452.75 rupees at the close of Mumbai trading today. The stock has advanced 32 percent in the past 12 months, compared with a 9.3 percent gain for the S&P BSE Sensex and second-ranked Infosys Ltd. (INFO)’s 3.2 percent drop.

Citigroup, VW

Infosys slid the most in a decade April 12 after missing its own full-year sales guidance and setting an annual revenue growth forecast that trailed analysts’ estimates.

Net income at Tata Consultancy rose to 36 billion rupees ($665 million) in the three months ended March, the Mumbai-based company said. That compares with the 36.1 billion-rupee median of 43 analysts’ estimates compiled by Bloomberg.

Revenue at Tata Consultancy, which provides computer services and back-office support to companies including Citigroup Inc. and Volkswagen AG (VOW), rose 24 percent in the fourth quarter to 164.3 billion rupees. That compared with the 164.5 billion-rupee median estimate compiled by Bloomberg.

“We continue to see strong momentum, deal closures are happening,” Chandrasekaran said. “We are positive about all sectors including financial services and, particularly, we also feel that telecom will see the recovery from the coming quarter and year onwards.”

Banking, Telecoms

Banking, financial services and insurance was the largest segment, contributing 43 percent of Tata Consultancy’s revenue in the year to March 2012, according to data compiled by Bloomberg. Telecommunications accounted for 11 percent of sales.

“TCS demonstrated that it’s possible for Indian IT companies to produce gradual and sustainable growth in the current economic environment,” said Harit Shah, Mumbai-based analyst with Nirmal Bang Equities Pvt. “That’s a strong and encouraging statement for TCS and the industry.”

Top information-technology service providers are predicted to post double-digit growth as a recovery in the U.S. and in financial services stokes demand, Rana said.

“The global economic environment is providing us with many new opportunities,” Chandrasekaran said. “We are going to have a better year this year.”

Margins Shrink

The company’s margins declined 70 basis points after the quarter ended December, due to a $30 million settlement over a wage dispute in California. Indian workers claimed that Tata had forced them to sign over their federal and tax refunds to the company and wrongfully deducted Indian salaries from their U.S. compensation.

“The margins cut was a one-off cost associated with the U.S. lawsuit,” said Bhuvnesh Singh, head of research in India for Barclays Plc.

Tata Consultancy will also consider buying rivals in Europe to add customers, Chandrasekaran said. The Indian software exporter agreed this month to acquire French information- technology services company Alti SA for 75 million euros ($98 million) to gain clients in banking, luxury goods, manufacturing and utilities.

“We are constantly looking for acquisitions, Europe is a focus area for organic and inorganic growth,” Chandrasekaran said.

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

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

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