Tata results signal recovery for Indian outsourcers

Tata Consultancy Services (TCS) signaled a stable recovery for Indian outsourcers when it reported on Monday strong revenue and profit growth in dollar terms for the quarter and fiscal year ended March 31.

TCS, India's largest outsourcer, as well as other services vendors like Infosys Technologies, were hit for a large part of last year by the economic recession.

TCS said that its revenue for the quarter ended March 31 was $1.7 billion, up by 17.6% from the same quarter in the previous year. Profit was up 60% to $420 million.

The company has registered revenue growth in all the industry segments in which it operates, said N. Chandrasekaran, the company's CEO and managing director, at a press briefing in Mumbai.

For its fiscal year ended March 31, the company posted revenue of $6.34 billion, up by 5.38% from the previous year. Profit was up 29% to $1.45 billion.

The results are in accordance with U.S. GAAP (generally accepted accounting principles).

It may be back to business as usual for Indian outsourcers, analysts said. Infosys, the country's second largest outsourcer, also reported earlier this month a growth in profit and revenue in dollar terms for the quarter.

The company said that revenue for the quarter ended March 31 was $1.3 billion, up 15.6% from revenue in the same quarter a year ago. Profit increased by 8.7% to $349 million. The company forecast that revenue for the fiscal year ending March 31, 2011 will range from $5.57 billion and $5.67 billion, or year-over-year growth of 16% to 18%.

Worldwide spending on IT services is expected to reach $821 billion in 2010, up 5.7% from 2009, Gartner said earlier this month.

The market for outsourcing has improved, but it is too early to predict a return to the boom time before the recession for Indian outsourcers, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International (TPI).

Customers are looking at outsourcing options including offshoring, primarily with an eye to cut down costs, Pai said. They haven't started investing in automation and new technologies in a big way for business or revenue growth, he added.

There is also concern that as companies resume large-scale hiring in India, there will be a return to the spiraling salaries before the recession. TCS, for example, added 10,775 new staff in the quarter ended March 31. The company has made offers to 20,000 students in campuses for the fiscal year ending March 31, 2011, and is also planning increments for its staff in India, said Ajoy Mukherjee, TCS' vice president and head of global human resources.

These new staff additions by Indian outsourcers may not however push up salaries in the short term, as there are still students who graduated in 2009 that have not been absorbed by the IT sector, Pai said.

Just as challenging for Indian outsourcers is the appreciation of the Indian rupee against the U.S. dollar and some European currencies. Most of the revenue of Indian outsourcers comes from Europe and the U.S. A strong rupee reduces the money available to Indian outsourcers for spending on staff and facilities offshore in India.

While the rupee appreciated by 2% against the dollar in the quarter ended March 31, the appreciation was higher at about 7% against some European currencies, said S. Mahalingam, TCS' chief financial officer. The company improved its margins by trimming costs and getting more efficient, he said.


Copyright © 2010 IDG Communications, Inc.

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