Biggest Asian Software Exporter Drops as Floods Dent Revenue

  • Tata Consultancy 3Q sales misses estimate; profit climbs 12%
  • Shares fall most in two months to lowest since June 2014

Shares of Tata Consultancy Services Ltd. slumped to a 19-month low after sales fell short of estimates in a quarter marked by seasonal holidays and floods that stalled work at a key development center in India.

The stock fell 2.1 percent, the most in two months, to 2,279.20 rupees in Mumbai, compared with a 0.7 percent gain in India’s benchmark S&P BSE Sensex. The shares have tumbled 6.5 percent in January and are headed for their worst month since April 2013, according to data compiled by Bloomberg.

Group revenue at Asia’s biggest software services provider rose 11.7 percent to 273.6 billion rupees ($4.1 billion) in the quarter through December, missing the 276.4 billion-rupee average estimate in a Bloomberg survey of 27 analysts. Net income climbed 12 percent to 61.1 billion rupees, exceeding the 60.1 billion-rupee estimate.

“The reported numbers came in even lower” than expectations, Credit Suisse Group AG’s Mumbai-based analysts Anantha Narayan and Nitin Jain wrote in a research note on Tuesday. “The seasonal weakness seems a bit more pronounced this year.”

‘Challenging Quarter’

The Mumbai-based company, which in October predicted weaker growth in the second half of the fiscal year ending March, had to struggle with the worst flooding in a century in the southern Indian city of Chennai, where it has 65,000 employees. The natural calamity disrupted work for four days, reducing billable hours during the quarter on top of the furloughs and holiday seasons in the U.S. including Thanksgiving and Christmas.

“In a challenging quarter with significant cross-currency and other headwinds, we have generated excellent cash flows,” Chief Financial Officer Rajesh Gopinathan said in a statement, referring to the depreciation of the British pound and euro against the dollar.

The local unit of Nomura Holdings Inc., in a report dated Wednesday, said it expects Tata Consultancy’s revenue growth next fiscal year to trail Infosys Ltd., which is scheduled to announce its quarterly earnings Thursday.

Cognizant Guidance

Teaneck, New Jersey-based Cognizant Technology Solutions Corp., which has 11 delivery and operations centers in Chennai, said in a statement Tuesday that its business continuity plan “largely mitigated” the financial impact from the flooding in December. It reaffirmed its 2015 revenue guidance of at least $12.41 billion.

Tata Consultancy reported a revenue growth of 0.5 percent in constant-currency terms from the previous quarter, while profit increased 0.9 percent. Chief Executive Officer Natarajan Chandrasekaran told reporters in Mumbai Tuesday that he doesn’t see any “negative news” barring another slow quarter for its U.K. unit Diligenta. The company will pay a dividend of 5.5 rupees a share.

“I think customers are going to continue to invest in digital, continue to grow,” Chandrasekaran said. “Now we need to see how fast they will ramp up.”

The operating margin for the quarter was 26.6 percent, and there’s no threat to its projected band of 26 percent to 28 percent, Gopinathan told reporters.

In the quarter, the company added one client with potential for $100 million in revenue, and two that could bring in $20 million each. Gross employee addition in the period was 22,118, with the attrition rate falling to 15.9 percent.

Markets such as the U.S. and Europe, and the health-care sector are crucial to Tata Consultancy and the company will seek acquisitions there, Chandrasekaran said.

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