The Hindu Business Line : TCS: Reassurance on offshoring model

TATA Consultancy Services has unveiled a strong set of numbers in its earnings scorecard for the second quarter ended September 30, 2004. With their strong performance, TCS along with Infosys Technologies, has offered a booster dose to all those who needed reassurance on the robustness of the offshoring model.

By recording a 14 per cent sequential growth in revenues and post tax earnings (before exceptional items), TCS has comfortably matched a 15 per cent growth logged by Infosys Technologies. This is creditable as TCS is working on a bigger revenue base relative to its frontline peers. Its per share earnings works out to Rs 11.56 (before exceptional items) and Rs.7.34 (including exceptional items relating to one-time charge on compensation and taxes on transfer of overseas subsidiaries).

Some of the key elements that stand out in the latest earnings performance of TCS are:

The revenue contribution of GE Group, the biggest customer of TCS has come down to 15.9 per cent of revenues in the latest quarter from 17.1 per cent in the first quarter of 2004-05. As the revenue base of TCS expands, the contribution of GE is likely to keep going down as a proportion of total revenues.

TCS has added 52 additional customers this quarter, though this is lower than the 69 customers added in the first quarter. The company has also shown significant momentum in the addition of $1 million and $5 million clients on a sequential basis. Compared to Infosys, however, the client addition in the $5 million, $10 million and $20 million bracket has been somewhat lower.

Offshore contribution of TCS has inched up marginally to 37.5 per cent. While this is hardly a trend, the management has indicated that the shift towards offshore is expected to continue in the coming quarters.

The revenue contribution from the US and European geography continues to be healthy at over 80 per cent. It is interesting to note that TCS is serving 35 customers from its Global Delivery Centres established at remote and low cost locations such as Uruguay, Brasil, Hungary and China.