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Paul Noronha

Pricing pressure : (From left) Mr N. Chandrasekaran, COO, TCS; Mr S. Ramadorai, CEO and MD; and Mr S. Mahalingam, CFO, at a press conference in Mumbai on Friday.—

Our Bureau

Mumbai, July 17

Tata Consultancy Services beat market expectations with a 19-per cent rise in the net profit for the first quarter ended June 30, 2009 in spite of the challenging macro economic conditions.

This better-than expected performance was achieved mainly through growth in key industry verticals (financial services, retail and distribution and media and entertainment), bringing more work onshore and reducing overall costs of operation, company officials told reporters after announcing the results.

The net profit for the quarter rose to Rs 1,534 crore from Rs 1,291 crore in the year-ago quarter. The profit was up by 15 per cent in comparison with the fourth quarter of the last fiscal. Revenues for the quarter increased by 12 per cent per cent on a year-on-year basis to Rs 7,207 crore (Rs 6,411 crore). Operating margins for the quarter improved 165 basis points.

“Our growth has been equally distributed across both major markets and the emerging markets. Having said that, the macro economic situation continues to be weak and we do expect some shocks in the way,” Mr S Ramadorai, CEO and Managing Director of TCS, said at a news conference here on Friday.

During the quarter, TCS won eight large deals. Of these, five came from the US. Two of the deals were in the manufacturing sector.

TCS, which develops software applications, supply chains and runs back-office services, managed to convince its clients to send more work to low-cost destinations such as India. As a result, it managed to increase offshore revenues, which had a positive impact of 95 basis points on its margins, said Mr S. Mahalingam, Chief Financial Officer and Executive Director.

Moreover, the company managed to reduce cost on almost all fronts. Overseas business expenditure is down by 9.71 per cent at Rs 1,094.4 crore (Rs 1,212.1 crore). Hedging loss was reduced to Rs 85 crore from Rs 192 crore last quarter.

In the wake of economic uncertainty, clients continue to ask for discounts from their outsourcing vendors. For TCS, pricing on contracts was down by 25 basis points on revenues and it had a negative impact of 33 basis points on margins. “We have already articulated that pricing on contracts will not increase this year. We will be lucky if we are able to contain prices at the current levels,” said Mr N. Chandrasekaran, Chief Operating Officer and Executive Director, said.

However, the company expects its verticals of telecom, hi-tech and manufacturing to continue to be in the woods. The company declared a dividend of Rs 2 a share post-bonus.

More Stories on : Financial Performance | Software | Outlook | Tata Consultancy Services Ltd

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