Tata Consultancy Beats Estimates on New Contracts, Services

  • Company added contracts in food & beverage, technology
  • Growing uncertainty is leading to customer caution, CEO says

Tata Consultancy Services Ltd. posted quarterly profit that beat analyst estimates on new contracts and a push into cloud computing and digital services that is helping weather lackluster global IT spending.

Net income rose to 65.9 billion rupees ($985 million) in the three months ended September, the Mumbai-based company said Thursday. That compares with the 63 billion-rupee average of analyst estimates compiled by Bloomberg. Sales at Asia’s largest provider of software services rose just 7.8 percent to 292.8 billion rupees, slowing from 14 percent growth a year earlier.

Tata Consultancy has been able to defy uncertainty by adding customers and touting its leadership in financial services and insurance as Chief Executive Officer Natarajan Chandrasekaran seeks to win contracts. The company’s revenue has been hit as customers pull back on spending, while it’s also vulnerable to a slumping British pound, with about 15 percent of revenue coming from the U.K.

“Clearly this was one of the toughest quarters for TCS,” said Sudin Apte, CEO of Pune-based outsourcing advisory Offshore Insights. “Shrinkage in revenue indicates not only tough market conditions but also the firm’s lower competitiveness."

Chandrasekaran said the company hasn’t had any impact from Britain’s decision to leave the European Union, the so-called Brexit.

Tata added contracts with a food & beverage maker and retailer in North America along with and oil & gas producer in the Asia Pacific region

The company is reducing its dependence on traditional outsourcing and exploring ways to serve customers through internet and social-based projects.

Shares of Tata Consultancy fell 2.2 percent to close at 2,328.90 rupees before the earnings were announced, compared with a 1.6 percent decline in the benchmark S&P BSE Sensex. TCS is the first of the major Indian IT companies to report earnings, with Infosys Ltd. results due on Friday.

“Growing uncertainties in the environment is creating caution among customers and resulted in holdbacks in discretionary spending this quarter,” Chandrasekaran said in a statement. “With technology increasingly at the forefront of business, we are confident that this is temporary.”

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