Tata Consultancy Services Limited : Tata Consultancy 4Q Profit Tops View; Sees Stable Growth Ahead

04/23/2012| 11:25am US/Eastern

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-- January-March net profit INR29.32 billion vs forecast INR28.40 billion

-- Sales rise 31% to INR132.59 billion; analysts forecast INR132.24 bln

-- TCS CEO expects sales growth to outpace industry's view of 11%-14% this fiscal year

-- EBITDA margin contracted sequentially to 27.7% from 28.3%

-- Business volume rises 3.3% on quarter

(Recasts throughout, adds comments from executives in 5th and 11th paragraphs, comments from analyst in 10th paragraph)

By Kenan Machado and Dhanya Ann Thoppil

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Tata Consultancy Services Ltd. (532540.BY) Monday topped forecasts with a 23% rise in fourth-quarter net profit and said that sales this fiscal year will likely grow faster than the Indian outsourcing industry's outlook despite the tough economic environment.

The comments from India's largest software exporter by revenue about exceeding the industry's 11%-14% sales growth view for the fiscal year that began April 1 are in contrast to the outlook of its nearest rivals. Second-ranked Infosys Ltd. and fourth-largest HCL Technologies Ltd. earlier this month warned that outsourcing orders might be drying up as clients in the major markets of the U.S. and Europe remained cautious on spending.

In the last fiscal year, the Mumbai-based Tata group company posted a 24% rise in sales to $10.2 billion.

TCS's comments will likely improve investor sentiment toward India's outsourcing sector, especially after Infosys shocked the market by missing, for the first time ever, its own revenue growth target for the last fiscal year and setting this year's sales increase outlook below the industry's view.

"We think next year is going to be a good year," TCS Chief Executive N. Chandrasekaran told reporters. He said that clients are starting to make decisions on projects and that spending even on projects which aren't so critical in nature is easing.

Despite the patchy recovery in economic growth in the U.S., Chandrasekaran expects business performance to remain stable in the region. North America accounts for more than half its revenue.

For the quarter through March, TCS's net profit rose to INR29.32 billion ($558 million) from INR23.93 billion a year earlier, based on international accounting standards. Profit grew 1.6% sequentially.

Profit was higher than the INR28.40 billion average of estimates in a Dow Jones Newswires poll of 22 analysts.

Earnings were hurt by a net INR1.25 billion on hedging losses arising from an average 1% rise in the value of the Indian rupee against the U.S. dollar. TCS's hedges stood at $3 billion at the end of March.

Consolidated sales grew nearly 31% to INR132.59 billion, while analysts were expecting INR132.24 billion. Sales grew less than 1% sequentially.

TCS's revenue growth and the management's comments on the near-term growth outlook should soothe some concerns about overall demand for technology services, CLSA Asia Pacific said.

The company's earnings margin before interest, tax, depreciation and amortization contracted to 27.7% from 28.3% in the previous three months, weighed by the rupee's rise, Finance Chief S. Mahalingam said.

Business volume at TCS grew 3.3% sequentially, compared with a 1.5% decline at Infosys and a 2.9% rise at HCL Technologies.

The company plans to hire 50,000 people this fiscal year, after recruiting more than 70,000 last year.

-By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464; dhanya.thoppil@dowjones.com

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