TCS sees slower volume in Q3

TCS sees slower volume in Q3

Mumbai: Tata Consultancy Services (TCS), India’s top outsourcing company, said on Monday it does not expect volume growth in the December quarter to match the September quarter as firms are still deciding on IT budgets.

“As far as this quarter is concerned, it will certainly be a growth quarter. But we don’t believe it will be same growth, in terms of volume, as the previous quarter," chief financial officer S. Mahalingam told the Reuters India Investment Summit.

The company’s revenue rose 3.2% in the September quarter over the June quarter.

Corporate IT budgets have been tight for almost a year due to the global financial crisis and economic downturn, but now signs were that potential customers were looking at outsourcing as a way to better manage their service.

He said the deal pipeline was looking good as decision times by companies were getting shorter.

IT research firm Gartner in October said global IT spending was likely to decline 5.2% in 2009, marking the worst year on record, but expects a return to growth of 3.3% in 2010.

On Monday, the Economic Times reported leading Indian outsourcers stood to gain contracts worth about $1 billion in the next one to two years as US banks exit the troubled asset relief programme.

Pricing Not An Issue

However pricing, which was a big concern towards the end of the previous fiscal year, was no longer such a major issue, Mahalingam said.

“I would say that the pricing pressure is certainly not felt intensely at this point in time," he said. There had been no major price negotiations in the last seven months, while new customers were coming in at average TCS prices.

One reason for the ease on pricing was the move away from charging on time and resources to delivering complete solutions to customers, he said.

The IT outsourcing sector had resorted to several cost cutting measures, including pay cuts, to help deal with the economic downturn. With the situation improving, TCS is likely to see a rise in wages next fiscal year, he added.

Tata Consultancy, which had sales of $6 billion in fiscal 2008-09 beat forecasts with a 29% rise in third-quarter net profit but warned a sharp rebound in the near term was unlikely. Rival Infosys Technologies signalled a bumpy road to recovery.

India’s software and services exports are expected to grow 4 to 7% in the year to March 2010, after rising about 16% last year, according to the National Association of Software and Service Companies.

Mahalingam said North America would continue to be an engine of growth for the company despite the slowdown.

“We don’t see much of a slowdown there on an ongoing will continue to grow," he said.

He also noted appreciation of the rupee against the dollar was an area of concern and the company was comfortable at the dollar rate of Rs45.

Part of the diversified Tata Group, which straddles the commodities, automobiles, metals and IT industries, Tata Consultancy counts Citigroup, General Electric, General Motors and Ferrari among its clients.

Ahead of the interview, shares in TCS, valued at $28 billion, edged up 0.1% in a market that rose 0.9%. Its shares have almost tripled so far this year, outpacing a 73% rise in the main index.