Tata's revenue, profits soar despite uncertain environment

Analysts however caution that a lot of the business is pent-up demand after the recession

Tata Consultancy Services (TCS), India's largest outsourcer, reported on Monday strong growth in revenue and profit for the quarter ended Dec. 31, citing a strong demand for its services.

TCS' revenue for the quarter was US$2.14 billion, up by 31 percent from the same quarter in the previous year. Net profit of $517 million for the quarter was up 35 percent. The results are in accordance with U.S. accounting rules.

Based on discussions with customers, the company expects its customers' IT spend to remain the same or improve, TCS CEO and managing director N. Chandrasekaran said at a news conference in Mumbai. TCS and other Indian outsourcers derive most of their revenue from North America and Europe.

The results from TCS follow similar strong results from Infosys Technologies, India's second-largest outsourcer. Infosys said last week that revenue was up by 28.7 percent from the same quarter in the previous year, while net profit was up by 18.9 percent.

There is, however, still uncertainty for Indian outsourcers on a number of fronts. The industry has not yet seen a return to growth that is guaranteed to be long term, said Siddharth Pai, a partner at TPI, a sourcing data and advisory firm.

The return to growth has been confined to a few large Indian outsourcers, who are mainly benefiting from a surge in pent-up demand after the recession, and because more work is now moving offshore, Pai said. The Indian outsourcing industry at large has not reached the high growth levels before the recession, he added.

The weak economic recovery in the U.S. and the sovereign debt crisis in Europe could still impact the growth of the offshore industry, Infosys cautioned. Chandrasekaran said the macroeconomic environment was still "dynamic".

Costs are also increasing for Indian outsourcers as they compete for staff with one another and the Indian subsidiaries of multinational services companies such as IBM, Accenture, and Hewlett-Packard. TCS for example added 12,497 staff in the quarter and expects to add between 12,000 to 15,000 staff in the next quarter.

To keep their costs low, Indian outsourcers are focusing more on campus hires, said Jimit Arora, research director at Everest Group.

The appreciation of the Indian rupee against the U.S. dollar and the U.K. pound has also affected margins, as it affected the revenue in rupees for these companies. However despite these pressures, TCS was able to grow its margins, said Chief Financial Officer S. Mahalingam.

TCS added 35 new clients in the quarter.

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