The Hindu Business Line : TCS Q2 net may dip 1 pc on IPO charges

SOFTWARE major Tata Consultancy Services Ltd (TCS) is likely to report sequential one per cent dip in its net earnings for the September quarter in the current fiscal, as the company plans to write off one-time initial share sale charges, sources said.

Moreover, the fall is likely to be aided by full impact realisation of 10 per cent offshore wage hike in the current quarter, analysts said. However, the company is expected to bounce back to robust earnings growth from third quarter onwards, they added. The company reported its net profit at Rs 519 crore and revenue at Rs 2134 crore for the first quarter ended June in the current fiscal.

TCS, which recently raised Rs 5,420 crore through an initial public offer (IPO), will acquire the Tata Services Division of Tata Sons with effect from April 1, 2004 for Rs 2,300 crore. All costs and expenses (including stamp duties) of the transfer will be borne by TCS. Moreover, the company will incur a one-time cost of Rs 190 crore (Rs 850 per share), as it will issue 0.5 per cent of its post-IPO equity to eligible employees at a face value of Re 1. Employees such as those of TCS America, who will not be eligible for the share grant following regulatory restrictions, will be given a one-off cash grant of Rs 90 crore by Tata Sons.But this expense will have to be booked as an expense in TCS' books under US GAAP (Generally Accepted Accounting Principles).

"We expect most of these costs to be booked in the second quarter," analysts said.

The minor slip could hurt the stock in the near term and TCS shares are likely to trade at a discount compared to smaller rivals like Infosys. "We feel that Infosys is likely to report close to three per cent sequential growth in the September quarter, since its wage hikes have already been blended into the system... this might give a fillip to the stock in the near term", analysts added.