TCS logs smallest gain in 7 qtrs on stronger Re

India's largest IT services provider, Tata Consultancy Services (TCS), beat market expectations to post consolidated revenues of Rs 5,640 crore in the second quarter ended September 30, 2007.

However, this is the smallest gain in seven quarters as the rupee's gains reduced earnings from the US, its biggest market.

The Indian GAAP (Generally Accepted Accounting Principles) revenue figure was up 25.4 per cent (year-on-year) compared with Rs 4,495 crore during the same period a year ago.

Net profit went up 22.8 per cent to Rs 1,252 crore, dipping to a new low this quarter. The company had posted 36.3 per cent y-o-y growth in net profit in the first quarter of the current financial year.

Sequentially, Infosys' revenue grew by 8.8 per cent, while profit grew by 1.9 per cent. TCS' revenue grew 8.4 per cent, while its net profit increased by 4.1 per cent.

However, Infosys' operating margin improved 260 basis points (much higher than TCS' 77 basis points) despite higher sales and marketing expenditure, essentially due to higher employee utilisation (both companies have over 70 per cent utilisation rates), lower visa costs and better pricing ""- 3 to 4 per cent for new contracts and 2 to 3 per cent for renewals.

TCS, though, has managed to negotiate better pricing for its new clients (5 per cent plus) and 3 to 5 per cent for renewals.

The company's operating margins overall improved by 0.77 per cent. TCS also added 51 new clients (Infosys added 48) this quarter.

It signed three new $50 million deals (one of them in the BFSI segment) and has 20 deals worth over $50 million in the pipeline. Infosys has 12-14 deals, 70 per cent of which are over $100 million.

TCS also recorded better volume growth. It has managed its employees better too "" the attrition rate is 11.5 per cent as compared with Infosys' 14.2 per cent.

Besides, TCS' employee additions (9,268 net) are almost double that of Infosys "" 4,530 (of course, Infosys' Mysore unit is not ready, hence the difference is more pronounced this quarter).

Brokerage houses, meanwhile, are not bullish on the IT sector as a whole.

"Investors should await further clarity on the IT budgets of BFSI companies (they get decided in December or January) as any delay/cut in IT spending by these clients could impact the financial performance of the Indian IT industry," noted an ICICI Securities analyst.

"Besides the rupee appreciation against the US dollar continues to play spoilsport," said Manik Taneja of Emkay Research.

Q2 Revenues at Rs 5,640 cr ($ 1.42b); up 25.4% Y-o-Y

Q2 Net Profit at Rs 1,252 cr ($314m) up 22.8% Y-on-Y

First India-based IT firm to cross landmark of 100,000 employees; 12,523 employees joined in Q2

Poised to cross $5 bn in 2007-08 at current annual growth rate

EPS at Rs 12.79

51 new clients

Quarterly dividend of Rs 3 per share