Tata Consultancy Predicts Stronger Growth on Outsourcing

Tata Consultancy Services Ltd., India’s largest software exporter, predicts growth will be stronger this year as customers in the U.S. and Europe, as well as the Asia Pacific region outsource more work.

“We are exiting the year with a great growth momentum,” Chief Executive Officer N. Chandrasekaran said yesterday after the company reported a 51 percent jump in fourth-quarter profit. “If you look at what clients are telling us, if you look at the deal pipeline, deal closures, order book, sentiment, and the discretionary spend, taking all of this we believe FY15 will be a stronger year.”

Tata Consultancy joins competitor Infosys Ltd. in posting earnings that beat estimates as more companies spend on cloud-based solutions, mobility and data analytics. Sales growth at Mumbai-based Tata Consultancy will be stronger in the fiscal year that started April 1 than the prior 12 months as customers in the financial services, retail and life sciences industries step up technology spending, according to Chandrasekaran.

“The management commentary continued to remain bullish and consistent with previous quarters,” Pratish Krishnan and Sagar Lele, analysts at Antique Stock Broking Ltd., wrote in a note to clients. “Given its superior growth rates and margin profile, we believe premium valuations are sustainable.”

Tata Consultancy rose 1.2 percent to 2,222.90 rupees at the close in Mumbai trading, while the benchmark S&P BSE Sensex Index gained 1.6 percent.

Net income climbed to 53 billion rupees ($878 million) in the three months ended March. That compares with the 52.4 billion-rupee median of 39 analysts’ estimates compiled by Bloomberg.

Contract Wins

Revenue at Tata Consultancy rose to 215.5 billion rupees, from 164.3 billion rupees a year earlier. That compared with the 216.9 billion-rupee median of 41 analysts’ estimates.

The software-services provider, which last month said the fourth quarter was “seasonally weak” amid slowing demand in India ahead of general elections, expects the home market to stay “soft” for longer, Chandrasekaran said.

“From an India perspective, we need to wait until the elections are over because we generally see a delay in decision making, a delay in the bids, and long cycle times,” Chandrasekaran said in an interview with Bloomberg TV India today. The India business “is not going to see an uptick in the near future, at least not until September,” he said.

The company, which has won contracts from India’s Department of Posts and the tax office, got 7.8 percent of sales from the home market in the year ended March 2013. Voting in India’s general elections, which began April 7, will conclude May 12 and ballots will be counted May 16.

Discretionary Budget

Tata Consultancy, which maintains computers and provides software and outsourcing services for companies including Citigroup Inc. and France’s GDF Suez SA, won nine large deals in the last quarter. Contracts included one with a European utility to transform customer service processes and a multiyear, multimillion dollar order from a North American drugmaker, the company said.

Companies are investing in technology to simplify business processes and drive efficiency, Chandrasekaran said yesterday. “There is a discretionary budget that is going toward digital that we are hearing across the board, and we are engaged with our clients in the area. The third area of spend is regulatory changes, governance, security, controls and risk management.”

Demand Recovery

Worldwide information technology services spending will climb 3.7 percent to $671 billion in 2014, accelerating from 2.8 percent growth last year, according to market researcher IDC.

“We maintain our thesis of an industrywide demand recovery” in the current fiscal year, driven by a spending recovery at U.S. banking and financial services companies, Nitin Jain, an analyst at Ambit Capital Pvt. in Mumbai, wrote in an April 7 report. Demand will also be bolstered by an increased offshoring trend in Europe and greater acceptance of social media, mobility, analytics and cloud, Jain wrote.

Infosys, India’s second-largest software-services exporter, on April 15 forecast full-year sales growth that beat analyst estimates. Revenue in the 12 months started April 1 will climb 7 percent to 9 percent in U.S. dollar terms, Infosys said, faster than the 6 percent to 8.3 percent average of six analysts’ estimates compiled by Bloomberg.

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