Tata Consultancy Profit Exceeds Estimates on Europe Demand

Jul 17, 2014 8:44 am ET

(Updates with comment from CEO in seventh paragraph.)

July 17 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest software company, posted first-quarter profit that beat analyst estimates as customers in Europe increased spending on information technology services.

Net income rose 27 percent to 50.6 billion rupees ($841 million) in the three months ended June from 39.9 billion rupees a year earlier, Mumbai-based Tata Consultancy said in a statement today. That compares with the 48.9 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg.

Tata Consultancy joins competitor Infosys Ltd. in posting earnings that beat analyst estimates as European companies outsource more of their information technology work. Chief Financial Officer Rajesh Gopinathan last month said Tata Consultancy was benefiting from its investments in Europe because of growing demand.

“Europe for everyone is doing well, because that is the one geography that is underpenetrated,” Ankita Somani, an analyst at Marwadi Share & Finance Ltd. in Mumbai, said before the earnings announcement. “That will benefit TCS.”

Tata Consultancy, which won a contract last quarter from Dutch insurance company Reaal NV, saw its share of revenue from Europe increase by 2 percentage points to 29 percent in the year ended March.

Tata Consultancy fell 0.8 percent to 2,381.95 rupees at the close in Mumbai trading, before the earnings announcement. The benchmark S&P BSE Sensex Index was little changed.

‘Demand Pipeline’

“We have a strong demand pipeline in place,” Chief Executive Officer N. Chandrasekaran said in the statement. “Strong execution capabilities will help us to sustain our momentum.”

Revenue increased 23 percent to 221.1 billion rupees. That compared with the 220 billion-rupee median of 44 analysts’ estimates.

Worldwide information technology spending growth is expected to slow to 4.1 percent this year, compared with an earlier 4.6 percent projection, according to researcher International Data Corp.

A slowdown in mobile-device sales will contribute to lower growth, while cloud computing disrupts traditional IT budgets, Framingham, Massachusetts-based IDC said in the May 16 forecast.

Tata Consultancy reported a net addition of 4,967 employees in the quarter and its attrition rate rose to 12 percent, from 10.5 percent a year earlier.

The company said expenses included a one-time charge of 1.75 billion rupees “in depreciation on account of change in useful life of assets as at April 1.”

Infosys, India’s second-largest software services exporter, reported July 11 first-quarter net income rose 22 percent to 28.9 billion rupees, beating analyst estimates. The Bengaluru- based company also kept its forecast for full-year sales growth of 7 percent to 9 percent in U.S. dollar terms.

Tata Consultancy, which maintains computers and provides software and outsourcing services for companies including Citigroup Inc. and France’s GDF Suez SA, last quarter won seven large deals, the company said.