Tata Consultancy Profit Misses Estimates Amid Weak Demand

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Tata Consultancy Services Ltd., India’s largest software services company, posted profit that trailed analyst estimates as clients including in the retail and insurance industries held back on outsourcing work.

Net income rose 5.1 percent to 54.4 billion rupees ($876 million) in the third quarter, the Mumbai-based company said today. That compares with the 54.8 billion-rupee median of 37 analysts’ estimates compiled by Bloomberg.

Earnings at Tata Consultancy missed estimates for the second consecutive quarter as currency volatility combined with seasonal shutdowns at clients and holidays to damp revenue. Chief Financial Officer Rajesh Gopinathan last month said “a weak demand environment” especially in India made it difficult to project an outlook for the company’s fourth quarter.

“We expect revenue to be impacted by both seasonality as well as cross currency,” Sagar Lele, an analyst at Antique Stock Broking Ltd. in Mumbai, said before the earnings announcement. “We’re not expecting a big number on the revenue front, but what we’ll be keenly watching would be the management commentary around the demand environment.”

Sales climbed 15 percent to 245 billion rupees and compared with the 245.2 billion-rupee median of analysts’ estimates.

‘Deal Pipeline’

“Deal pipeline is very strong,” Chief Executive Officer N. Chandrasekaran told reporters today, adding the company had won seven large contracts last quarter. “We are well on our way to post industry-leading” full-year growth, he said.

Smaller rival Infosys on Jan. 9 posted third-quarter profit that beat analyst estimates as it won more clients. The Bengaluru-based company maintained its forecast for full-year sales to rise 7 percent to 9 percent in U.S. dollar terms.

Shares of Tata Consultancy rose 0.7 percent to 2,539.10 rupees at the close in Mumbai trading, before the announcement. The benchmark S&P BSE Sensex Index climbed 2.7 percent.

Tata Consultancy reported a net addition of 4,868 employees in the quarter and said the attrition rate was 13.4 percent, compared with 12.8 percent in the three months ended September.

“There is no truth whatsoever in any rumor about layoffs,” Chandrasekaran said today. “TCS is in high-growth mode and it’s hiring significantly.”

A total of 2,574 employees, or 0.8 percent of the workforce, had been asked to leave in the nine months ended December, Tata Consultancy said in a statement on Jan. 13. “Performance appraisals and associated processes are an integral part of” operations, it said at the time.