TCS sees large deals with good quarter

By Sumeet Chatterjee

BANGALORE: Tata Consultancy Services Ltd. (TCS), India's top software exporter, said on Tuesday its strong earnings growth momentum would continue as it won more large-sized outsourcing deals.

The company, part of Tata group that has diverse interests including steel, salt, cars and trucks, was negotiating 10 large contracts, some valued at about $100 million, chief financial officer S. Mahalingam told Reuters in an interview.

Mumbai-headquartered TCS, which has a market value of $29.3 billion, said on Monday that net profit in the quarter ended Dec. 31 rose by 48 percent, beating market expectations, as it won more outsourcing deals.

"The current quarter will also be good for the company as they have booked some large deals. They need big deals to grow. The outlook on the company is very positive," Harmendra Gandhi, vice president of research at brokerage BRICS Securities, said.

Shares in TCS, whose clients include General Electric Co. and ABN AMRO, ended flat, after opening up 5.4 percent, in a Mumbai market that fell 0.1 percent.

Indian software firms have been winning large deals from foreign clients, but a stronger rupee slowed revenue growth in a $23 billion software and back-office services exports industry that earns nearly 60 percent of its business from U.S. clients.

TCS reported revenue growth of 8.4 percent in rupee terms in the quarter from July-September, despite a gain of almost 4 percent in the rupee against the dollar.

"That shows your growth momentum, and we expect that this momentum will continue," Mahalingam said.

He said TCS saw an upward trend in margins in the March quarter, after boosting operating margins by 79 basis points to 26.08 percent in October-December from the previous quarter on improved pricing and hedging.

TCS saw an overall increase of 4.6 percent in the prices it charged in the December quarter. Mahalingam said that the company was happy with the rise, which came despite rising competition among Indian companies for outsourcing deals.

Mahalingam said the company had a target of recruiting 30,000 employees in the fiscal year that ends in March.

"We have already recruited 24,000. We should be getting somewhere closer to the target," he said.

India's large English-speaking engineering workforce and wages of nearly one-fifth of western salaries have attracted outsourcing deals, but the boom has raised labour costs for technology companies.

Still, the software and back-office industry, which earns 90 percent of its revenue from overseas clients, expects exports to rise 27-30 percent to $29-$31 billion in the year to end-March.