TCS net profit rises 7 percent in FY09 Q1, warns of “difficult” times ahead
SOURCE: IBTIMES.COM
DATE: JULY 16th, 2008
ARTICLE
India’s top software services and consulting firm, Tata Consultancy Services (TCS) has reported a 7 percent rise in net profit for the fiscal quarter ended June 30, 2008, in line with market expectations, even as it gave a grim warning of slowdown in outsourcing business prospects due to existing turmoil in the global financial market.
TCS, which gets at least 50 percent of its revenue from US clients in financial sector, said its net profit (consolidated) under the Indian accounting practice (Indian Generally Accepted Accounting Principles or GAAP) for Q1 of FY09 was Rs.1290.61 crore, up from Rs.1202.93 crore during the corresponding period a year earlier (a year on year or YoY growth of 7.28 percent).
Total revenues from operations (consolidated) for the same period was Rs.6410.70 crore in Q1 of FY09, up from Rs.5157.30 crore during the corresponding period a year earlier (a YoY rise of 24.30 percent).
Earnings per share or EPS was up 7.32 percent to Rs.13.19, from Rs.12.29 during the corresponding period a year earlier.
On a standalone basis, under the Indian accounting practice (Indian Generally Accepted Accounting Principles or GAAP), TCS posted net profit of Rs.1204.01 crore in Q1 of FY09, up from Rs.1073.85 crore in the corresponding period a year earlier (YoY growth of 12.12 percent).
Total revenues from operations (standalone) for Q1 of FY09 was Rs.5212 crore, up from Rs.4134.41 crore in the corresponding period a year earlier (YoY growth of 26.06 percent).
Geographically, revenues from the Americas, Europe and India grew by 23.23 percent, 25.13 percent and 40.52 percent respectively (YoY basis).
Earnings per share or EPS was up 12.12 percent to Rs.12.30, from Rs.10.97 during the corresponding period a year earlier.
During the quarter under review, the IT firm said it added 35 new clients whereas 8982 employees joined the company taking total strength of the workforce to 116,308.
Attrition rate stood at 12.8 percent overall, TCS said, adding, that it was 12.1 percent in the IT services business and 20.5 percent in the BPO segment.
Our retention rates for employees continue to be the highest in the industry and we remain on course with our hiring plans for this financial year,” Ajoy Mukherjee, vice president, head (global human resources), said.
“We are also working to increase the productivity and utilization rates of our employees,” he added.
The Board of Directors has recommended an interim dividend of Rs.3 per share.
“We have been able to respond to the challenging macro environment and drive growth in the business under tough operating conditions and manage costs,” S. Ramadorai, managing director and CEO, TCS, said.
Despite the impact of annual wage increases during the quarter under review, TCS has managed to extract “greater operational efficiencies through rigorous cost management programs that have helped us hold operating margins steady in Q1,” said S. Mahalingam, executive director and CFO, TCS.
According to N. Chandrasekaran, executive director and COO, despite a “challenging external scenario,” business grew in major markets like the US, the UK and Europe.
“Traction in the manufacturing, life sciences and retail verticals has helped drive growth in Q1. Our diversified business mix, portfolio of offerings and blue-chip clients across sectors places us in good position to deliver growth on our large base in the coming quarters,” Chandrasekaran said.
However, Ramadorai expects the profit margin of TCS to be hit by the ongoing turmoil in the global financial markets. “TCS is cautiously optimistic about the rest of the year,” he said.
“We are operating in a difficult environment. There is still uncertainty but there are also growth opportunities and that is the reason behind cautious optimism,” he said.
Tata Consultancy Services or TCS is an IT services, business solutions and outsourcing organization that delivers real results to global businesses, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has over 116,000 of the world’s best trained IT consultants in 50 countries. The company generated consolidated revenues of $5.7 billion for fiscal year ended 31 March 2008 and is listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India.
ABOUT INDIA’S IT-BPO INDUSTRY
India’s $64 billion IT-BPO industry employing 2 million people and dominated by firms like TCS, Infosys Technologies, Wipro, Satyam Computer Services and HCL Technologies that offer solutions like system integration, application development, and supply chain designing and back-office services, accounts for 5.4 percent of the country’s gross domestic product (GDP). The industry, which grew in the mid-1990s and helped the nation’s economy surge to an annual growth rate of nine percent, is expected to increase its workforce to 8 million by 2018.
NASSCOM or National Association of Software and Services Companies, the consortium that serves as the apex body of the Indian IT software and BPO industry, has estimated that the Indian business process outsourcing, or BPO, industry provided direct employment to 704,000 professionals in FY 2007-08, and has projected that it will generate an additional 1.4 million jobs by 2010.
The lobby group projected earlier this month that India’s software and services exports would witness a slowdown in growth and rise between 21-24 percent to around $50 billion in the current fiscal year (FY09).
According to NASSCOM’s report titled, “FY08 Revenue Performance and FY09 Forecast for the Indian IT Software and Services Sectors,” the IT-BPO sector grew by 29 percent during the fiscal year ended March 31, 2008 (FY08) to $40.4 billion but would moderate during the current fiscal year due to the downturn of the US economy, global food and oil crisis and currency fluctuations.
Meanwhile, total revenues from the IT-BPO sector, including from domestic business, would rise between $62-64 billion in FY09, up from $52 billion in FY08, NASSCOM said.
Though India’s large pool of English-speaking IT workforce and cheaper wages have kept it ahead of its rivals like China, Philippines and Vietnam, and helped attract business from western firms such as ABN AMRO AAH.AS, Nortel and Airbus, yet, global financial turmoil and economic slowdown in the US have taken their toll on India’s IT-BPO sector.
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