Tata Consultancy Services defies currency and demand challenges

Software outsourcer Tata Consultancy Services, India's largest company by market capitalisation, unveiled better than expected profits on Thursday, despite a fourth quarter buffeted by currency volatility and weak demand from struggling energy sector clients.

Natarajan Chandrasekaran, chief executive, also reiterated that the company's revenue growth over the coming financial year would exceed the 13 to 15 per cent projected for India's software outsourcing sector as a whole by Nasscom, a trade body.

However, a one-off bonus of Rs26bn paid out to employees hit results for the fourth quarter, which ended on March 31, sending net profits down 31 per cent compared to the same period the year before.

Excluding that bonus, the Mumbai-based group reported net profit up 8 per cent at Rs58bn ($930m), exceeding estimates of Rs54bn from a Thomson Reuters survey of analysts. For the full year, TCS reported profits up 13 per cent at Rs217bn ($3.5bn), also excluding the impact of its bonus.

Mr Chandrasekaran said that quarterly performance had suffered from the recent sharp appreciation in the US dollar and from declining IT spending at energy sector clients, hit by declines in global oil prices.

Indian IT houses such as TCS, which export services such as software development and infrastructure management, once won the vast majority of their business in the US. But over recent years they have expanded into areas like Europe and Japan.

"This is traditionally a weak quarter, but in this quarter we have delivered good results," Mr Chandrasekaran said. "Our operating margin, I must say, given the low growth, has been exceptional."

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TCS has gradually replaced its Bangalore-based rival as India's main bellwether IT stock, following a decade of strong operational performance, increasing market share and buoyant share price rises. 

Still, TCS shares have risen by just 1 per cent so far in 2015, amid worries that expected increases in corporate IT spending in Europe and America have yet to materialise.

Kawaljeet Saluja, technology analyst at brokerage Kotak Institutional Equities, said that TCS would still outperform the wider industry over the coming year, but that higher competition could dent the premium that its stock holds over rivals.

"Perhaps now they [TCS] are winning market share more slowly, or they have just won all that they can, and they also will suffer from time to time from slower growth in some areas," Mr Saluja said.

"So their premium has come off a bit and the market is adjusting to that, but in terms of their business model strength, their delivery, their strategy, TCS is still far, far ahead of everyone else."

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