Tata Consultancy in growth mode despite Q2 profit miss

MUMBAI (Reuters) - India's biggest software services exporter Tata Consultancy Services Ltd said on Thursday it is "positive about the future" as it shifts towards higher margin services, despite reporting profits slightly below market expectations.

TCS is investing in digital offerings like mobile applications and cloud computing to meet customer demand and expects digital revenues, which make up less than 10 percent of the company's overall business at present, to generate at least $5 billion in sales in the next five years.

"All discretionary spending we are seeing is in digital," Chief Executive N. Chandrasekaran told reporters on Thursday.

During its fiscal second quarter ended Sept. 30, TCS made a net profit of 52.88 billion rupees ($854.46 million), up 13.6 percent from a year earlier but below the average analyst forecast of 53.84 billion rupees according to Thomson Reuters I/B/E/S.

TCS, part of the salt-to-steel Tata conglomerate, fell short of market expectations in part due to an unexpected growth slowdown in Latin America, which had previously been a growth driver among emerging markets.

"Some of the ramp-ups that were anticipated did not happen in Latin America and that contributed into a small decline. It should have been a positive growth, to that extent, it's been a negative surprise for us," CEO Chandrasekaran said.

But TCS, which faces strong competition from rivals such as Infosys Ltd, said it sees a strong deal pipeline and stable pricing in the next fiscal year.

"We are in the growth mode and are pretty positive about the future," Chandrasekaran added.

Exports by India's IT outsourcing sector are expected to rise 13-15 percent in the current fiscal year, according to the National Association of Software and Services Companies, as banks and other companies boost spending on technology.

Chandrasekaran also said the company had witnessed "very, very good growth" in the second quarter from India, led by client spending in the private sector.

The Mumbai-based company, which counts Cisco Systems Inc and Hewlett-Packard Co among its clients, posted a 13.5 percent increase in revenue in the fiscal second quarter to 238.16 billion rupees.

Separately, TCS also said its board had approved a merger with subsidiary CMC Ltd. TCS already owned about 51 percent stake in CMC.

Shares of the company closed down 0.78 percent at 2,678.18 rupees on the Mumbai market.

(Reporting by Aman Shah and Nivedita Bhattacharjee in Mumbai; Editing by Subhranshu Sahu and Vincent Baby)