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Business News/ Companies / TCS profit growth slows for 4th straight quarter on order delays
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TCS profit growth slows for 4th straight quarter on order delays

TCS profit growth slows for 4th straight quarter on order delays

Warning cry: TCS chief executive S. Ramadorai said last month that the slowdown in the banking and financial services sector was still on. Premium

Warning cry: TCS chief executive S. Ramadorai said last month that the slowdown in the banking and financial services sector was still on.

Bangalore: India’s largest software services provider, Tata Consultancy Services Ltd (TCS), reported profit growth slowed for the fourth straight quarter as credit-market losses and record energy prices drove customers to delay orders.

Warning cry: TCS chief executive S. Ramadorai said last month that the slowdown in the banking and financial services sector was still on.

TCS joins Infosys Technologies Ltd in reporting slower earnings growth as financial firms delay orders for software services while coping with the collapse of the US subprime mortgage market. Banks such as Citigroup Inc. and UBS AG, among Indian software makers’ biggest customers, have reported credit losses and writedowns of about $400 billion (Rs17.28 trillion at current exchange rates).

“Technology companies are going to be in for some hardship, a big segment of which is from the financial world," Gulbir Madan, who oversees $800 million of Indian equities at Neptune Capital Management Llc. in New York, said before earnings were reported. Madan sold all his TCS holdings in April.

TCS chief executive S. Ramadorai had said last month that the slowdown in the banking and financial services industry was still continuing. Banks, financial service providers and insurers accounted for 44% of TCS’ sales in the three months ended 31 March.

Infosys, India’s second largest computer services company, on 11 July kept its full-year earnings forecast in dollar terms little changed, citing “uncertain" economic conditions and an environment that had “slightly" worsened. Banks, finance and insurance companies contributed 34% of the Bangalore-based company’s sales in the quarter ended 31 March.

Ramadorai had said in April that TCS wouldn’t charge customers with contracts worth at least $50 million to move their work to the company’s lower-cost centres in India.

Some clients who delayed orders during the three months ended March started their projects after the company’s offer, he added.

“The outlook for outsourcing and technology spending in the US is likely to remain challenging in coming quarters," Morgan Stanley analysts Vipin Khare and Gaurav Rateria wrote in a 14 July report, when downgrading Infosys to “equal-weight" from “overweight". Morgan Stanley rates TCS “equal-weight".

TCS’ first quarter sales rose to Rs6,410 crore, from Rs5,160 crore a year earlier. Analysts had estimated Rs6,500 crore.

The stock fell 3% to close at Rs728.10 on the National Stock Exchange on Wednesday, its lowest value since 2 November 2005, before the company reported earnings.

Shares of TCS gained 5.9% in the last quarter, compared with a 14% decline in the Bombay Stock Exchange’s benchmark Sensex and Infosys’ 21% increase.

TCS manages computer networks, writes software programs and provides engineering services for customers, including ABN Amro Holding NV, Nielsen Co. and Chrysler Llc.

Wipro Ltd, India’s third largest computer services company, and Satyam Computer Services Ltd, the fourth biggest, will report earnings on 18 July.

Bloomberg

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Published: 16 Jul 2008, 10:46 PM IST
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