Bangalore: The country’s largest software services firm, Tata Consultancy Services Ltd (TCS), declared a lower-than-expected net profit for the quarter ended December because of a slowdown in sectors such as banking, financial services, insurance (BFSI), manufacturing and technology —firms in these businesses are big customers of TCS.
TCS’ numbers likely reflect what’s in store when other software companies declare their numbers for the quarter in the weeks ahead. They are also indicative of the performance of the software industry in 2008-09.
The firm announced its results even as India’s software lobby group, which was expected to revise downwards its July estimate of a 21-24% growth in the business this year, said it would take more time to do so because it wasn’t clear about the real numbers of Satyam Computer Services Ltd.
Backing himself: Tata Consultancy Services CEO S. Ramadorai. Gautam Singh / AP
Last week, Satyam’s founder B. Ramalinga Raju disclosed that he had, over the years, fudged the firm’s books to the tune of at least Rs7,136 crore.
Raju’s confession; the disclosure by the World Bank earlier this week that in addition to Satyam, which it had banned earlier from doing business with the bank, it had also banned Wipro Ltd and Megasoft Ltd; and Wednesday’s bankruptcy filing by Nortel Networks Corp., a significant customer for several Indian software firms, including TCS, have buffeted an industry that gave India its global face.
For the quarter ended 31 December, TCS posted revenue of Rs7,277 crore, an increase of 4.65% over the three months ended September and 24.13% over the December quarter of 2007. It earned a net profit of Rs1,362 crore in this period, up 7.1% compared to the September quarter and 1.6% compared to the year-ago quarter.
On Tuesday, TCS’ rival Infosys Technologies Ltd had reported impressive results, with income growing by 6.6% to Rs5,786 crore and profit to Rs1,641 crore by 14.6%, compared to the previous quarter of the same fiscal year, aided strongly by a weakening rupee against the dollar.
The Tata company’s performance was affected by the global financial crisis: around 42% of TCS’ revenue comes from companies in BFSI.
TCS’ chief executive and managing director S. Ramadorai said that “in tough market conditions, TCS continues to perform in a stellar fashion, driving revenue growth through our diversified market presence and boosting our operational profitability by conserving costs and creating efficiencies”.
Apurva Shah, head of research at Mumbai-based brokerage Prabhudas Lilladher Pvt. Ltd, said the numbers could be excused given the conditions. “The numbers in general are slightly lower than expectations. It is ok, because the environments are such.”
TCS’ clients include General Electric Corp., American Express Co., Boeing Corp., Citigroup Inc., British Airways Plc. and the World Bank.
The company, which declared its results after the end of the day’s trading, saw its shares close at Rs510, down 5.3%, on a day when the Sensex lost 3.5% to end the day at 9,046.74 points. TCS’ performance was also affected by currency losses of Rs251 crore.
Indian companies bill most of their clients in dollars and a few in euros and hedge to protect themselves from currency fluctuations. When they call the hedges wrong, they incur losses.
TCS is not in the habit of issuing guidance on revenue and profit and Ramadorai said that given the market conditions, “any projections anybody gives” will “either go wrong” or be reviewed downwards.
On Tuesday, Infosys had revised downwards its profit projections for the year ending March.
Nasscom’s chairman Ganesh Natarajan said that next year (the 12 months to March 2010) could be worse for Indian software firms because of a prolonged recession in key markets, the US and Europe. On 31 December, technology researcher IDC Corp. projected growth of the global IT industry to reduce by half to 2.6% due to the recession that has forced firms to cut technology budgets.
TCS, which earns 52.2% of its revenue from North America, said it won four large contracts of $100 million-plus (about Rs490 crore) from the US market that appears to be stabilizing, but would not predict what the future could be.
“Two days ago, we wouldn’t have said that Nortel would file for bankruptcy,” said N. Chandrasekaran, chief operating officer of TCS, adding the firm does rigorous due diligence, qualification of clients and ensures pricing discipline.
TCS said it earns less than 1% of its revenue from Canadian telecom equipment maker Nortel Networks, which on Wednesday filed for bankruptcy protection in the US. “It is not in the top 15 clients,” Chandrasekaran said.