Mumbai: Tata Consultancy Services Ltd (TCS), India’s largest software exporter, on Friday reported 3.1% growth in its September quarter revenue to Rs7,435 crore over the June quarter and a 7.1% growth in net profit to Rs1,642 crore, exceeding Street estimates and signalling growth prospects for India’s nearly $60 billion (Rs 2.8 trillion) outsourcing industry.
The performance was aided by improved new business, better manpower utilization and foreign exchange gains.
TCS was expected to report a profit of Rs1,500 crore, a sequential fall of 1.21%, and revenue of Rs7,348 crore, registering a 1.9% growth, according to a Mint poll of 11 brokerages.
“We are seeing an improvement in market conditions,” chief executive N. Chandrasekaran said, but cautioned that “client budgets are still being tightly managed”.
Compared with the same quarter a year ago, TCS posted a 29.2% growth in profit and 7% growth in revenue. It won 10 new deals during the quarter, two of which were worth over $100 million each, besides adding 11 new customers. One highlight of the September quarter results is the 5% sequential volume growth. “It is very exciting. These numbers are more reflective of being back to normal days,” said Apurva Shah, head of research at Prabhudas Lilladher Pvt. Ltd, a Mumbai-based brokerage.
Last week, global researcher Forrester Inc. predicted a rebound in US firms’ IT spending, starting in the December quarter. The US contributes nearly 60% of revenue for Indian software companies.
TCS joins second ranked Infosys Technologies Ltd in reporting earnings that surpassed forecasts, signalling demand may be starting to recover. Earnings may improve as profits rise at financial clients from Citigroup Inc. to Goldman Sachs. Last Friday, Infosys reported a 2.1% sequential growth in revenue and a 1% growth in profits.
“The worst is over for the information technology companies,” Mahesh Patil, who supervises about $2 billion in stocks, including TCS, as co-head of equities at Birla Sun Life Asset Management Co. Ltd in Mumbai, said before the earnings. “Companies are now feeling more confident about the outlook; no one is talking about a sharp recovery, but clearly the inquiries are increasing.”
TCS plans to take on board as many as 8,000 new trainees in the October-December quarter, up from the 5,530 additions in the July-September quarter.
In line with the rest of the industry, TCS gave performance-related pay hikes for the quarter. The employees have been given 150% of their variable pay as incentive. Typically, 70% of a TCS employee’s salary is fixed pay and the rest is variable.
Analysts say the strengthening rupee could impact performance of IT firms in the coming quarter. Indian IT exporters earn a large chunk of their revenues in dollars.
In the June-September quarter, the rupee fell 0.43% from 47.90 a dollar to 48.11, but since the beginning of the current quarter the local currency has gained 3.18% to 46.30. At $2.1billion, TCS had the largest currency hedge positions among Indian IT exporters, as of the quarter ended 30 June.
TCS rose 2.84% on Friday on the Bombay Stock Exchange to close at Rs599 even as the bourse’s bellwether equity index, the Sensex, rose 0.7%.
TCS announced earnings after market hours.
Rajhkumar K Shaaw and Harichandan Arakali of Bloomberg contributed to this story.