Tata Consultancy Profit Beats Estimates After Adding Clients

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  • Company added 6 client contracts worth more than $20 million
  • Tata watching how Brexit plays out and clients react

Tata Consultancy Services Ltd., Asia’s largest software services provider, posted quarterly profit that beat analyst estimates after adding clients and using cloud computing and mobile services to shore up revenue.

Net income rose to 63.2 billion rupees ($944 million) in the three months ended June, the Mumbai-based company said Thursday. That compares with the 60.6 billion-rupee average of analyst estimates compiled by Bloomberg. Sales were 293.1 billion rupees, while analysts had projected 292.5 billion rupees.

Tata Consultancy is keeping costs down and taking advantage of its leadership in several key segments like financial services and retail, as Chief Executive Officer Natarajan Chandrasekaran seeks to bolster revenues. Like closest rival Infosys Ltd., the company is also reducing its reliance on traditional outsourcing.

"It’s broadly positive because the deal pipeline is healthy,” said Sarabjit Kour Nangra, vice president, research, at Angel Broking in Mumbai. “TCS’s margins are in-line with my expectations, bottomline is better.”

Slowing industry growth, a transition into digital services and pricing and margin pressures as well as recent macro issues like Brexit have added to the uncertainty for India’s IT services companies such as TCS and Infosys.

Britain’s vote to exit the European Union has brought on currency and volume related risks that could linger, analysts at Jefferies Group LLC said in a report.

TCS, which generates more than a quarter of its sales from Europe, has a track record of investing in new segments and markets such as the Nordic region and Japan. The company has also pushed into automation, which suggests it won’t be blindsided by changing trends, according to Ambit Capital Pvt.

“It has been a strong quarter from multiple perspectives,” Chandrasekaran told an earnings briefing in Mumbai. “All markets are growing, all verticals have grown.”

Tata added six client contracts worth more than $20 million each and four that generate more than $50 million, the company said.

Shares of Tata Consultancy rose 1.2 percent before the earnings were announced, compared with a 0.5 percent advance in the benchmark S&P BSE Sensex. TCS is the first of the major Indian IT companies to report earnings, with Infosys results due on Friday.

TCS’ quarterly growth has been trailing its smaller Indian rival Infosys for the past four quarters.

Competitors such as Accenture Plc have made small but strategic acquisitions and investments in key areas like cloud services and security for both technology and talent, while TCS has focused on building its own platforms.