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TCS springs a nice Q1 surprise

This article was posted on Jul 18, 2009 and is filed under Stock News

MUMBAI: Tata Consultancy Services (TCS) overcame a tough business environment and beat street expectations by a huge margin to post a surprise
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growth in revenues and net profit for the first quarter of the fiscal, but warned that it was too early to wish away the global recession and demand uncertainty.

India’s largest software exporter posted a 23% growth in net profit at Rs 1,520 crore, helped by lower costs and higher revenues from major markets, but said pricing will remain under pressure in the next one year. Revenues were up 12.4% to Rs 7,207 crore, as the US market showed signs of stability as did the troubled financial services sector.

“It is a stellar quarter, made strong by operational execution. The global economy continues to be weak and job losses are happening all over. We are watchful of the situation and do not rule out more surprises,” said TCS managing director and chief executive S Ramadorai, reflecting the mixed trend.

The company said it would pay the variable component of employee salaries in full for the quarter, but would continue with the freeze on wage hikes for now.

The company has performed better than its closest rival Infosys Technologies with a business volume growth of 3.6% during the quarter, compared with a 1.1% volume decline announced by Infosys. Pricing pressure, however, continues and the company said there was a 25 basis points decline in pricing during the quarter.

“Pricing will not go up. We will be lucky if we maintain it,” said chief operating officer and CEO-designate N Chandrasekaran.

While the financial services sector and the US saw stability, worries remained primarily in three sectors — telecom, manufacturing and hi-tech, Mr Chandrasekaran said. There were signs of this in its first quarter performance, as revenues from a large UK-based telecom client continued to decline. The UK and Europe also did not grow as well.

The TCS stock was up 3.1% to Rs 433.60 on BSE on Friday in anticipation of the better results, the software major was to announce after market hours.

The company’s improved performance was also helped by lower forex losses of Rs 85 crore and increased interest and dividend income. “Our hedges
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for this quarter were $123 million on which we had a forex loss of Rs 85 crore. We won’t be taking any new currency hedges as the rupee is still reasonably depreciated,” said chief financial officer S Mahalingam.

He said cost management initiatives had delivered margin expansion all-round. Lower costs were also on account of more work moving offshore. The offshore revenues were 50.4% of its total revenues compared with 40.9% in the year-ago period. Onsite revenues, on the other hand, have declined to 44.4% of total revenues compared with 54.9% in the year-ago period.

TCS won eight large deals during the quarter with five of them coming from the US, two from Europe and one from Asia-Pacific. They are spread across different sectors — two being from customers in manufacturing and other six from retail, pharma, utilities among others. For the first time, the company has shown a decline in the number of net hires by 2119 people, although at gross level it hired 2,828 employees.

The company has made 111 job offers in the US for its largest delivery centre at Cincinnati. The centre has a capacity of 1000 people. Ajoy Mukherjee, head of global human resources, termed it the first large-scale hiring by the company for the Cincinnati facility.

source: Economictimes

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