The Hindu Business Line : TCS posts marginal rise in Q2 net on forex hedging losses

Mumbai, Oct. 22 The country’s largest software company Tata Consultancy Services reported flat growth in net profit for the second quarter ended September 2008 as it encountered losses related to forex hedging and made provisions for two customers impacted by the US sub-prime crisis.

The city-based company reported a 1.5 per cent growth in net profit, at Rs 1271 crore against Rs 1251.6 crore in the same quarter a year ago. On a sequential basis the company’s net profit was down 1.5 per cent. Revenues were up by 25.3 per cent on a year ago basis to Rs 6953 crore.

Due to the volatile foreign exchange environment, the company recorded a loss of Rs 260 crore. “At the beginning of the year, we had to take a view on the rupee, which was at 39, to protect our revenues. Much of the hit that we have taken is due to the additional hedges we had to take so that the majority of our hedges are protected at Rs 43 to the dollar “ Mr S Mahalingam, Chief Financial Officer and Executive Director, said at a news conference here on Wednesday.

The company currently has an open hedge position of $1.8 billion, said Mr Mahalingam.

During the immediate previous quarter the rupee reversed direction and depreciated by 8.3 per cent vis-À-vis the US dollar.

Six of the large international companies (including those in the financial service space) that have been in the news for their financial troubles are TCS`s clients, said Mr N Chandrasekaran, Chief Operating Officer and Executive Director. “We have made provision for two of them on a conservative basis. This has affected our margins (according to US GAAP) by 55 basis points,” he said. The six troubled clients account for about two per cent of the company’s revenues. For this quarter TCS’ operating profit margin stood at 24.23 per cent, against 22.06 per cent in the previous sequential quarter.

TCS is currently pursuing 20 outsourcing deals of above $50 million, four each in the retail, manufacturing and BFSI space, said Mr Chandrasekaran.

Mr S Ramadorai, Chief Executive Officer & Managing Director, said he sees TCS playing a key role in the economic recovery process for global companies that would involve integration services following M&A activity and greater client spend on compliance in view of the current crisis.

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