Tata Consultancy Profit Beats Estimates on Outsourcing

Tata Consultancy Services Ltd., India’s largest software exporter, reported third-quarter profit that beat analysts’ estimates helped by outsourcing orders from clients in emerging markets and the U.S.

Net income surged 23 percent to 35.5 billion rupees ($651 million) in the three months ended December, from 28.9 billion rupees a year earlier, the Mumbai-based company said in a statement yesterday. That compares with the 34 billion-rupee median of 38 analyst estimates compiled by Bloomberg. Sales rose 22 percent to 160.7 billion rupees.

Tata Consultancy said it won orders from an Asian financial institution and the Mexican government, while Latin America and India led growth among emerging markets. A strong deal pipeline and signs of demand momentum recovering in Europe, makes for a “very confident” outlook for the new financial year starting April 1, Chief Executive Officer N. Chandrasekaran told reporters yesterday.

“TCS is clearly doing better than its competitors, largely because they’ve gone aggressively into developing markets,” Atul Thakkar, analyst with Mumbai-based Anand Rathi Financial Services. “If the developed world continues to produce like we saw this quarter, that would be a game changer,” said Thakkar, who recommends investors hold the stock.

Tata Consultancy, whose customers include Citigroup Inc. and Volkswagen AG, added two $100 million-plus clients during the quarter, boosting the tally to 16. Total active customers reached 1,051 at the end of December, it said.

Shares Outperform

The software developer and call-center operator rose 2.2 percent to 1,334.50 rupees, the highest since Nov. 12, in Mumbai trading before the earnings announcement yesterday. The BSE India Sensitive Index added 1.2 percent. Tata Consultancy has climbed 23 percent in the past year, outperforming an 8.6 percent gain for its nearest competitor Infosys Ltd.

Infosys, based in Bangalore, surged a record 17 percent on Jan. 11 after raising its sales forecast and reporting higher-than-expected profit. The sector could trade at “historic highs” over the next two quarters, Thakkar said.

Major order wins in the last quarter included a large service management deal with a global financial services company in the U.S. and a multimillion-dollar contract from a North American health-care provider, Tata Consultancy said.

Tata Consultancy proposed an interim dividend of 3 rupees, the same as a year earlier.

The company added net 9,561 employees in the quarter and a total of almost 50,000 this fiscal year, Ajoy Mukherjee, head of human resources, said in the statement.

“We expect the good momentum to continue,” Chandrasekaran said. “From our point of view, the environment is good.”

Before it's here, it's on the Bloomberg Terminal.