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Tata Consultancy Sees Stronger 2014 as Net Tops Estimates

Tata Consultancy Chief Executive Natarajan Chandrasekaran
Tata Consutancy Services Ltd. Chief Executive Officer Natarajan Chandrasekaran. Photographer: Adeel Halim/Bloomberg

Jan. 17 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest company, reported profit that beat estimates as customers in the U.S. and Europe boosted spending on information technology services and predicted a “stronger” year ahead.

Net income rose 50 percent to 53.1 billion rupees ($862 million) in the three months ended Dec. 31, the fastest pace since the quarter ended March 2010, Mumbai-based Tata Consultancy said yesterday. That surpassed the 51.4 billion-rupee median of 46 analysts’ estimates compiled by Bloomberg. Sales climbed 33 percent, missing analysts’ estimates.

Tata Consultancy joins its nearest Indian competitor Infosys Ltd. in signaling IT demand in developed markets is strengthening. Infosys’s sales jump in Europe combined with comments from Accenture Plc about increasing activity in the region suggest European technology spending is rebounding, according to Anurag Rana, an analyst at Bloomberg Industries.

“Europe has been a revelation for the industry, including TCS,” Harit Shah, an analyst with Nirmal Bang Institutional Equities in Mumbai. “Any slowdown in revenue this quarter will certainly pick-up going forward.”

Worldwide spending on information technology will grow 3.1 percent to $3.8 trillion this year, with IT services set to climb 4.5 percent, researcher Gartner Inc. forecast Jan. 6.

‘Stronger 2014’

“Based on initial discussions with our customers we believe 2014 will be a stronger year for us than 2013, as customers execute their business plans in a relatively stable environment,” Chief Executive Officer N. Chandrasekaran, 50, said in the statement. The company raised its hiring target for the fiscal year ending March 31 to 55,000 people from 50,000.

The company also is looking at “inorganic” growth opportunities in Japan and the U.S., he said.

Tata Consultancy climbed 73 percent last year, making it the biggest gainer in the benchmark S&P BSE Sensex, which advanced 9 percent. The stock dropped 0.1 percent yesterday to 2,350.3 rupees. Earnings were released after trading closed.

With a market value equivalent to about $75 billion, TCS is India’s largest company.

Tata Consultancy will probably “maintain its outperformance over peers in the near term given its strong deal pipeline,” Rahul Jain at Dolat Capital in Mumbai said in a note. He cited the company’s “sustained confident stance on the business outlook” and its “confidence in its clients’ budgets.” Jain has an “accumulate” rating on the stock.

U.S., Europe

Revenue at Tata Consultancy rose to 212.9 billion rupees, from 160.7 billion rupees a year earlier. That compared with the 214.2 billion-rupee median of analysts’ estimates.

International sales increased 3.8 percent, largely on the recoveries in Europe and the U.S., Chandrasekaran said at a Mumbai press conference. Sales in India fell 9 percent, he said.

Chandrasekaran also said he expects little growth for the company in India for the next two quarters. General elections must be held in the country by May.

“The drop in India coupled with an appreciating rupee has taken its toll on sales for the quarter,” said Urmil Shah, a Mumbai-based analyst with Kim Eng Securities Pvt. “We expect growing global business to compensate, but this is definitely something to keep an eye on.”

The rupee climbed 1.3 percent against the dollar in the final three months of 2013. That compared with a 5.2 percent decline in the previous quarter.

Rupee

The rupee’s appreciation in the last quarter of 2013 affected TCS’s margins by 46 basis points, Chandrasekaran said. “We keep hedging for two quarters ahead, and we are holding to that strategy,” he said.

Tata Consultancy got 53 percent of its revenue in the quarter that ended Sept. 30 from North America, 29 percent from Europe and the U.K., and 7 percent from India, according to data compiled by Bloomberg.

The company will pay a 4 rupee per share dividend for the latest quarter, unchanged from the previous period.

Infosys last week raised its annual sales growth forecast for the second consecutive quarter after reporting third-quarter profit that beat analysts’ estimates.

To contact the reporters on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

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

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