Business up 5% in Europe, 2% in US but down 9% at home; bullish for 2014-15

Tata Consultancy Services, the country’s largest software exporter, reported a 50.3 per cent increase in its consolidated net profit for the third quarter ended December 2013, largely on higher international earnings and foreign exchange gains.

The company’s net profit totalled Rs 5,333 crore against Rs 3,550 crore during the corresponding three-month period last year. Revenue rose 32.5 per cent to Rs 21,294 crore (Rs 16,070 crore).

TCS’s customers include multinational corporations such as Deutsche Bank, American Express and The Nielsen Company.

At a news conference today, N. Chandrasekaran, Chief Executive Officer and Managing Director, said the company’s European operations grew 5.5 per cent while the US business logged gains of around 2 per cent.

Q3 is generally a weak quarter for IT companies because of the holiday season and furloughs in their biggest market, the US. (A furlough is temporary leave of some employees for special needs of a company.)

“Furloughs also affected some banks this time, in addition to manufacturing companies. However, we are bullish on the banking and financial service space this year,” said Chandrasekaran. Consequently, the BFSI space, which accounts for a lion’s share of the company’s revenues, was flat on a quarter-on-quarter basis.

In terms of sectors, TCS’s maximum growth came from manufacturing (6.1 per cent) followed by telecom (5.1 per cent), life sciences & healthcare (6.3 per cent), and media & entertainment (4.8 per cent). Chandrasekaran said the company won eight deals of over $50 million in the quarter gone by.

Rupee impact

The weak rupee, coupled with the company’s strategy of deploying forex contracts that use a range of exchange rates rather than a single rate, helped its numbers. TCS reported a foreign exchange gain of Rs 299 crore for the quarter against a forex loss of Rs 377 crore in the previous period, said Rajesh Gopinathan, Chief Financial Officer. Its operating profit margin contracted marginally to 29.7 per cent.

As expected, TCS’s India business was down by about 9 per cent. The company attributed this to lower IT spending by the Government and private sector entities, with elections round the corner.

The company has painted a rosy picture for fiscal year 2014-15, with Chandrasekaran saying that next year will be even better. “The deal pipeline is healthy, and the addressable IT spending that we are targeting has increased from last year,” he said.

The company has declared a third interim dividend of Rs 4 per equity share of Re 1 each.

Ahead of the results announcement, the TCS scrip dipped 0.12 per cent to close at Rs 2,351.35 on the Bombay Stock Exchange on Thursday.

(This article was published on January 16, 2014)
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