Tata’s profit dips, revenue flat in difficult market

BANGALORE – India’s largest outsourcer, Tata Consultancy Services (TCS), reported for the quarter ended Dec. 31 flat growth in dollar revenue and an 18 per cent drop in profits compared to the same quarter a year earlier.

TCS like other Indian outsourcers is grappling with the global economic slowdown, including declining IT spending and delayed orders by key clients, and wide currency fluctuations.

The company’s revenue and profit growth in U.S. dollar terms has been affected, though in constant currency and absolute terms, the company’s business continues to grow, S. Mahalingam, the company’s chief financial officer, told reporters at a press conference last week.

TCS has significant exposure in non-dollar denominated revenue and the depreciation in the British pound, euro, Australian dollar and Brazilian real has meant that the revenue earned in those currencies translated into a lower amount of U.S. dollars, the company said.

Revenue for the quarter was US$1.48 billion, matching the figure from the previous year’s quarter. But profit dropped to $276.2 million from $336.7 million a year earlier. The results are based on U.S. generally accepted accounting principles.

Tata’s revenue and profit growth in Indian rupee terms were far stronger largely because the company benefited from the depreciation of the rupee against the U.S. dollar. Revenue for the quarter was 73 billion Indian rupees, up 24.13 per cent from the same quarter in 2007. Profit grew 2.7 per cent for the quarter.

The company added 41 clients during the quarter. It hired 8,692 staff, taking the total to 130,343 as of Dec. 31. The company is on track to hire between 30,000 to 35,000 employees during its fiscal year ending March 31, and has also issued offers to 24,000 campus recruits for the next fiscal year, said Ajoy Mukherjee, the company’s vice president and head of human resources.

A number of events overshadowed the company’s earnings announcement. Financially struggling Nortel Networks, a TCS customer, filed for bankruptcy protection in the U.S. on Wednesday. TCS however clarified that Nortel accounted for less than 0.5 percent of the company’s revenue. Earlier in the day, another Indian outsourcer, Wipro, said that business from Nortel accounted for less than 1.5 percent of its IT business revenue, and its assessment was that a substantial part of that business was expected to continue.

TCS also said that the crises at Citigroup would not impact its business from the financial services company. Citigroup is a client of TCS both for IT services and for business process outsourcing. TCS announced in December that it had completed the purchase from Citigroup of its back office services subsidiary in India, called Citigroup Global Services Limited (CGSL), for an all-cash consideration of $512 million. The deal also includes a commitment of business from Citigroup of $2.5 billion over 9.5 years.

The financial scandal of another outsourcer, Satyam Computer Services, poses an opportunity and threat for TCS and other Indian outsourcers, according to analysts. TCS’ CEO confirmed that some Satyam customers had approached the company, but no deals have been reached. On the flip side, research firms like Forrester have predicted that customers will scrutinize their Indian suppliers more closely after the Satyam episode.

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