Tata Consultancy Services Ltd, India's top software services exporter, beat forecasts with a 25.7 percent jump in quarterly profit on Monday as it won large outsourcing deals and raised fees for customers.
The company, which got more than half its revenue from the United States in the September quarter, said outsourcing demand was strong as Western companies sought to cut their costs despite the risk of a U.S. downturn.
The pipeline is very good. We are looking at about 20 large deals, Chief Operating Officer N. Chandrasekaran told a news conference. So far, we feel very confident that there will be no major cuts (in IT budgets).
India's large pool of English-speaking workers have helped attract outsourcing by firms such as Cisco Systems and General Electric, but a rupee that has risen more than 12.5 percent against the dollar this year, the risk of a U.S. slowdown and soaring wages are concerns. Chief Financial Officer S. Mahalingam said the company offset the impact of the firmer rupee and wage hikes by increased hedging, which was at $2.6 billion at the end of the September quarter, and by raising billing rates for clients.
Tata Consultancy, part of India's Tata Group that has diverse interests including steel and cars, said net profit in the September quarter rose to 12.47 billion rupees ($317 million) from 9.92 billion a year earlier under U.S. accounting rules.
The profit was boosted by other income of 1.1 billion rupees in the quarter, up from 77.32 million rupees a year ago.
A Reuters poll of 12 brokerages had forecast a net profit of 12.23 billion rupees for Mumbai-based Tata Consultancy, whose leading clients include General Electric and ABN AMRO.
The rupee rose more than 2 percent against the dollar in the quarter on strong capital flows. Last week, it hit a 9-1/2-year high of 39.27 per dollar.
The stronger rupee had an impact of 30 basis points and staff wage hikes during July-September shaved off 117 basis points from the operating margins of Tata Consultancy, which added 51 new clients in its fiscal second quarter. We remain confident that our hedging program and cost management levers will help us expand margins during the rest of the year, Mahalingam said in a statement.
Infosys Technologies, which ranks behind Tata Consultancy in India's $31.4 billion software services exports industry, last week said quarterly profit rose by nearly a fifth but investors were unhappy with its business outlook.
Ahead of the announcement, shares in Tata Consultancy, which the market values at $26.6 billion, ended nearly 1 percent higher at 1,073.65 rupees in a Mumbai market that rose 3.5 percent to a record close.
Shares in software services companies were laggards in a record-setting rally in the September quarter on concerns that the sector's robust earnings growth could slow. Tata Consultancy shares fell 8 percent during the quarter, sharply underperforming the main Mumbai market that rose 18 percent. The sector index declined nearly 5 percent in the same period.