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Tata Consultancy banks on rupee stabilization to improve margins

Tata Consultancy banks on rupee stabilization to improve margins
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First Published: Wed, Jul 18 2007. 12 30 AM IST
Updated: Wed, Jul 18 2007. 12 30 AM IST
Mumbai: Tata Consultancy Services Ltd, India’s largest computer services exporter, said it expects operating margin to widen this financial year if the local currency maintains its level against the US dollar.
“If the rupee is stable, we should be able to improve the margin,” chief executive officer S. Ramadorai said in an interview in Mumbai on Tuesday, a day after the company announced its first quarter earnings. “I think the rupee will be in the region of 40-41 or so. The wages have been factored in. The first quarter had the maximum impact in terms of wages.”
The company’s profitability declined in the first quarter from the previous three months because of the rupee’s gains and annual salary increases awarded in April.
Operating profit or earnings before interest, taxes, depreciation and amortization as a percentage of sales fell to 25% from 28.3% in the three months ended 31 March.
The rupee climbed 6.8% against the dollar in the three months ended 30 June, its biggest gain in more than three decades, according to data compiled by Bloomberg. The currency may appreciate to Rs40.24 to a dollar by the end of 2007, according to the median estimate of 22 strategists surveyed by Bloomberg.
Tata Consultancy shares rose 2.39% to Rs1,154.85 at close on the Bombay Stock Exchange. The shares have fallen 5.3% this year, compared with an 11% rise in the benchmark Sensitive Index.
Tata Consultancy, based in Mumbai, and smaller rivals such as Infosys Technologies Ltd get a majority of their revenue in dollars as the US is the biggest market for their services. Tata Consultancy’s first-quarter profit gained 37%, more than expected, after it won new orders and raised fees for managing networks and call centres.
The company expects its revenue from consulting services to more than triple to $650 million (Rs2,626 crore at current rates) by 2010, from an estimated $200 million in the current year to 31 March, executive vice-president N. Chandrasekaran said at a press conference in Mumbai on Tuesday. Tata Consultancy plans to increase the number of workers at its consulting unit to 2,500 in three years from 750.
The company’s profit rose to Rs1,180 crore in the three months ended 30 June, beating the Rs1,080 crore median estimate of nine analysts surveyed by Bloomberg. Revenue gained 26% to Rs5,200 crore.
The company is completing more overseas contracts in India to reduce wage costs and improve operating margin, chief financial officer S. Mahalingam said in an interview in Mumbai on Tuesday.
The company, which implements 41% of its export orders domestically, aims to increase the share to 45%. “For every percentage point increase you get 20-30 basis points improvement in margin,” Mahalingam said, adding that many clients are increasing orders to Tata Consultancy. The company added 54 clients in the past quarter and the number of customers contributing at least $1 million each in annual sales rose to 322 from 297. Those accounting for more than $50 million each increased to 20 from 12, Mahalingam said.
“We are also sitting on a number of proposals,” he said. “There are at least 20 proposals in the $50 million range.”
The company expects the rupee to trade at about 40 to the dollar during July-September, appreciating from an average Rs40.88 in the first quarter. “Our view is to be able to operate in volatile conditions,” Mahalingam said. “Last year (we) were at 47 to the dollar and this year we are at 40. We haven’t really gone wrong.”
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Anand Menon in Singapore and Gautam Chakravorthy in Mumbai contributed to this story.
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First Published: Wed, Jul 18 2007. 12 30 AM IST
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