Tata Consultancy Rises to Record on Demand Outlook: Mumbai Mover

Tata Consultancy Services Ltd., Asia’s largest computer-services exporter by market value, surged to a record after saying a “healthy” pipeline of outsourcing orders would boost sales this year.

Shares of Tata Consultancy climbed 5 percent to 1,742.80 rupees at the close in Mumbai trading, the highest since its listing in August 2004. The stock was the best performer on the 30-company benchmark S&P BSE Sensex which rose 0.1 percent.

“Our pipeline is very, very good not only in the U.S. but everywhere else,” Chief Executive Officer N. Chandrasekaran said at a news conference yesterday. “All our sectors financial services, telecom, retail, manufacturing, life sciences have all shown very good growth as well as very good demand, so we are looking forward to a good” year, he said.

Tata Consultancy, which reported profit that beat analysts’ estimates, joins smaller competitor Infosys Ltd. in signaling demand for outsourced software work has increased. Seven of the 10 large deals Mumbai-based Tata Consultancy won last quarter were from companies in the U.S., suggesting demand for information technology services is rising in North America, the largest market for Tata Consultancy and Infosys.

“On the demand front, Infosys numbers and TCS numbers are showing some kind of improvement, specially in the U.S.,” Nitin Prakash Daga, analyst at Microsec Capital Ltd., said by phone from Kolkata. “Going by the growth in volumes, improvement in its margins” Tata Consultancy has outperformed, Daga said.

Sales Surpasses

Net income rose 16 percent to 38 billion rupees ($636 million) in the three months ended June from a year earlier, Tata Consultancy said. That surpassed the 37.5 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg.

Sales rose 21 percent from a year earlier to 179.9 billion rupees. That compared with the 176.2 billion-rupee median estimate compiled by Bloomberg.

Infosys reported July 12 a 3.7 percent increase in first-quarter profit to 23.7 billion rupees. Revenue climbed 17 percent, the Bangalore-based company said at the time.

Tata Consultancy, which provides computer services and back office support to companies including Citigroup Inc. and Network Rail in the U.K., won two new $100 million clients in the quarter, the company said in a statement. A global aerospace major and a leading Nordic airline outsourced work to the Indian software-services provider, it said.

Chandrasekaran said Tata Consultancy expects sales growth in the year ending March to be above industry average. India’s software industry group Nasscom has forecast the nation’s computer services exports will expand as much as 14 percent.

‘Right Signals’

“We’ve been saying this year will be better than last year -- how much better is still a question,” Chandrasekaran said in an interview with Bloomberg TV India today. “All signs in terms of business cycles, pick up of businesses in different markets, are coming together -- all the right signals are there. U.S. companies are adopting technologies faster -- looking for new ways to invest in technology.”

Spending on IT services worldwide is estimated to climb 2.2 percent this year, up from 2 percent in 2012, Gartner said July 2. The Stamford, Connecticut-based research company had in March forecast a 4.5 percent increase in 2013.

Shares of Infosys surged the most in six months in Mumbai trading July 12 after the company’s sales forecast in dollar terms beat analyst estimates. The company reiterated full-year dollar revenue will increase 6 percent to 10 percent. Ten analysts in a Bloomberg News survey predicted Infosys would cut the top end of its guidance to 7.5 percent.

Immigration Bill

The outsourcing industry, especially India’s software-services providers may be affected by the changes in visa rules if a U.S. immigration bill that has been passed by the Senate and awaits a vote in the House of Representatives is implemented as it is, according to Anurag Rana, a Bloomberg Industries analyst.

“The real thing is going to be to figure out what happens on the immigration front,” Rana said yesterday. “That has the potential to change the entire outsourcing model.”

Among the various changes in the proposed immigration law is a measure to restrict companies with a U.S.-based staff comprised of visa holders in excess of 15 percent from placing those employees at domestic client locations. This rule “really just shuts you off from the entire business,” Infosys’s Chief Financial Officer Rajiv Bansal said at the Sanford C. Bernstein Strategic Decisions Conference on May 31.

Tata Consultancy and Infosys get the bulk of their sales from companies in North America. The region contributed 62 percent of Infosys’s revenue in the year ended March, while Tata Consultancy made 53 percent of its sales in that market in the same 12-month period.

“There is no impact from” concerns about the immigration bill, Chandrasekaran said yesterday. “Clients know what is going on. We have a strong presence in the U.S. and we partner with clients and wherever required we are in discussions. We should just wait for the process to be over.”

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