Mumbai/Bangalore/Hyderabad: Worries of a slowdown in the US economy reached Indian tech service firms on Monday when Tata Consultancy Services Ltd, the country’s biggest software services company by sales, announced results that fell well short of analyst expectations. Hours earlier, fourth-ranked Satyam Computer Services Ltd, made a revenue forecast for fiscal 2009 that was up to six percentage points less than guidance made at the beginning of the financial year just gone by.
Net profits at TCS, as the Tata firm is commonly called, grew 4.15% to Rs1,245 crore in the March quarter from Rs1,195 crore. Revenues for the latest quarter stood at Rs6.098 crore, 18.13% more than the sales in the March 2007 quarter. Compared to the December quarter, net profits in the three months ended 31 March contracted 6.17%; revenue growth was just 3%.
TCS’ profit missed the Rs1,357crore estimate in a Mint poll of 10 analysts that predicted sales of Rs6,228 crore. For the year to end-March, the company reported net profits of Rs5,026 crore, up 19.31% from Rs4,213 crore in the year before and sales of Rs22,863 crore in the financial year gone by, an expansion of 22.36%.
Late evening, the Mumbai-headed firm said a 10-year contract for $70 million with the Chile government had been cancelled but did not elaborate further.
The year’s results reflected the effects of a local currency that appreciated some 11% against the dollar. In the quarter, prima facie, higher sales, general and administrative or SGA expenses seemed to have been a drag on profits. SGA spending accounted for 21.98% of revenues in the March quarter compared to 19.72% in the year-ago period. This negated an increase in financial income and lower taxes.
Revenue growth in March quarter, the fourth in the financial year, slowed compared to the previous quarters due to a delay in payments from certain clients. However, “our deal pipeline remains strong,” said N. Chandrasekharan, chief operating officer and executive director, TCS. There were no cancellations of projects from customers in the banking, financial services and insurance industries, he added. In a February presentation to investors, Chandrasekharan had indicated reduced growth and even reduction in 2008 tech budget spending by some of TCS’ Wall Street customers.
“The delay in project flows from clients could have impacted them more than what people were expecting,” said Harit Shah, analyst at Angel Broking Ltd.
TCS, which does not issue profit and revenue guidances, expressed confidence in the year ahead. “We are confident on the next fiscal but will continue to be cautious about the external conditions especially in US. We will deliver sustained, profitable growth in the next financial year,” S. Ramadorai, chief executive and managing director said. Some two-thirds of the Indian tech services business is accounted for by US clients and the number is 50% for TCS. “Emerging market operations will also drive growth,” he said.
At Hyderabad, improved pricing helped Satyam pip larger rivals such as Infosys Technologies Ltd and Wipro Ltd in growth of business to post a 7.6% sequential (March over December quarter) profit growth and 10% revenues for the quarter to March. Pricing of services was up 5% in the year. The firm posted an one-third increase in revenue to Rs8,473.49 crore in fiscal 2008 and a net profit of Rs1,687.89 crore, reflecting a year-on-year expansion of 20%.
Operating margins were down by two percentage points to 21.65% mainly impacted by the strong rupee. The company, which said it is uncertain about the implications of the US slowdown on its business, lowered its earnings forecast and expects revenues to expand one-fourth in fiscal 2009 to Rs10,670 crore. As against a guidance of 28% to 30% growth in revenues given for the fiscal 2007-08, the firm announced a guidance of 24% to 26% growth in the current fiscal.
Satyam’s chairman B. Ramalinga Raju told reporters that the company had to bring down the guidance for revenues and profit for the current fiscal keeping in view the implications of slowdown in the US economy. Still, said Angel’s Shah, “overall the visibility for Satyam is pretty strong compared to larger peers”. Chief financial officer Srinivas Vadlamani said operating margins for the year-ahead will decline by 50 basis points (one basis point is a hundredth of a percent), despite the impact of wages on Ebitda marings coming at between 3% and 3.5%. (Ebitda stands for earnings before interest, tax, depreciation and amortization.)
Satyam plans to acquire the market research and customer analytics operations of Caterpillar Inc., a manufacturer of construction and mining equipment for $60 million and Belgium-based supply chain management consulting firm, S&V Management Consultants for $35 million. On Monday, key IT stocks fell, while the Sensex was up 1.57% to close at 16739 points. TCS shares ended lower by 1% at Rs992.55 each ahead of the results, while shares of Satyam closed down 2.13% at Rs458.95 each.