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Mr S. Ramadorai (right), CEO & Managing Director, Tata Consultancy Services, with Mr S. Mahalingam, Executive Vice-President & CFO, at a press conference in Mumbai on Tuesday. - Paul Noronha

Mumbai , April 19

TATA Consultancy Services Ltd (TCS) today reported a consolidated net profit of Rs 471.79 crore on an operational income of Rs 2,603.97 crore for the fourth quarter of 2004-05.This is a 34 per cent decline from the reported third quarter net profit of Rs 7,13.31 crore. However, after making some adjustments to the fourth quarter net profits, it stands reduced to a 5 per cent drop over the corresponding third quarter. The adjustments relate to adding back Rs 102 crore of performance-based incentive plan to the latest quarter's net profit and taking out an exceptional forex gain of Rs 109 crore accounted in the third quarter net profits.

In its first full year earnings performance since going public in August 2004, the company has posted a consolidated net profit of Rs 1,976.90 crore on an operational income of Rs 9,748.47 crore (Rs 9,550.60 crore from consultancy services and Rs 197.87 crore from software licences). The full year net profit was arrived at after considering an additional amount of Rs 102 crore towards EVA-based incentive plan for employees, thus charging Rs 427 crore totally towards variable pay for employees.

Compared to third quarter, the fourth quarter figures were impacted to the tune of Rs 50 crore by rupee appreciation against the dollar (from an average rate of Rs 44.47 / $ to Rs 43.50 / $), collection and revaluation charges to the extent of Rs 14 crore and a Rs 10.71 crore-loss on forward cover (in Q3, TCS had booked a profit of Rs 110.48 crore on forward cover).

According to the senior management of TCS, if these deductions of Q4 were restored to the results and the same adjusted for last quarter, then Q4 net profit would be Rs 574 crore.

Markets disappointed

On Dalal Street however there was much disappointment with TCS' Q4 results and the company's stock closed lower by 8.37 per cent on BSE, at Rs 1,209.75.

Notwithstanding the deductions, gross margins improved, senior TCS officials said at a press briefing. "We have done exceptionally well. Essentially we have doubled revenues in two years from $1 billion to $2.24 billion," Mr S. Ramadorai, CEO and Managing Director, said. Also noted was the Rs 1,141 crore earned from domestic business and the fact that the maximum negative impact from exchange rate variation was taken in Q4.

The company is not expecting any sharp variation in the exchange rate for the next quarter, Mr S. Mahalingam, Chief Finance Officer, said.

Challenges

Mr Ramadorai said risks associated with security like intellectual property, ensuring onshore to offshore transition without business impact to customers and managing attrition with utmost care to not lose critical project managers were the challenges that TCS needed to look out for.

Attrition last year was eight per cent while salary increase averaged 10 per cent.

In 2004-2005, the Americas brought in 59.5 per cent of TCS' revenues followed by Europe at 23.2 per cent and India at 11.7 per cent. In Q4, there was a further reduction in revenues from GE to 13.96 per cent of TCS' international revenues from Q3's 14.83 per cent.

The highest income-earning vertical for the year was banking, financial services and insurance (BFSI) at 38.4 per cent with manufacturing at 19.3 per cent and telecom at 16.4 per cent. An estimated 72.9 per cent of the company's income came from application development and maintenance; enterprise solutions accounted for 21.8 per cent.

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