The Hindu Business Line : TCS, Infosys post slower EVA growth

They explain
This reflects the lower growth in revenues and profits due to currency appreciation: Infosys
This is largely related to factors such as interest rates which are notional in a way; profitability has risen: TCS

Adith Charlie

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Mumbai, June 20 Economic value-added (EVA) growth for both the Indian IT biggies, TCS and Infosys, for the year just ended, is the slowest compared to EVA growth both companies had shown in each of the previous three years.

This is a reflection of the tough times that the IT/ITES industry went through last fiscal - primarily due to rupee appreciation- wherein even the larger players with a seemingly stable business model were not spared, according to Mr Harit Shah, IT Analyst, Angel Broking.

EVA is the post-tax return on capital employed minus the cost of capital employed. It is considered that companies, which earn higher returns than the cost of capital, create value. Companies, which earn lower returns than the cost of capital, are deemed destroyers of shareholder value.

According to Infosys annual report, EVA growth in terms of percentage has been 7.7 per cent in the last fiscal. In the previous three years, the EVA growth was 37.8 per cent, 36 per cent and 64.3 per cent.

During fiscal 2008, Infosys` revenues in US GAAP terms increased by 35 per cent; but on account of 11-per cent rupee appreciation, the revenues in Indian GAAP terms grew only by 20 per cent, Infosys Chief Financial Officer, Mr V. Balakrishna, told Business Line.

“The slower growth in EVA reflects the lower growth rate in revenues and profits due to currency appreciation. We roughly lost around Rs. 2,000 crore in revenues and around Rs 1,000 crore in net income due to the appreciation of the rupee during the year,” he said.

TCS’ EVA grew by 15.4 per cent last fiscal. In the previous two years, the EVA growth was reported to be 36.7 per cent and 48.8 per cent respectively.

However, Mr S. Mahalingam, Chief Financial Officer of TCS, is not perturbed. The fall in EVA growth is largely related to factors such as interest rates which are notional in a way; profitability of the company has increased and so TCS sees no cause for concern, according to Mr Mahalingam.

Interestingly, earlier this year employees of TCS were told that they would lose about 1.5 per cent of the total cost-to- company (CTC) salary for two months, as the company failed to meet its internal economic value-added (EVA) target of Rs 376 crore for the first time.

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