TCS net up 7% but below market expectations

Management admits to pricing pressure; rules out pay rise.

The global slowdown, as expected, had an adverse impact on the fortunes of India's largest IT services provider, Tata Consultancy Services (TCS), despite a 4 per cent decline in the value of the Indian rupee against the US dollar. The results, however, were lower than market expectations.

The company registered a consolidated net profit (Indian GAAP) of Rs 1,333 crore for the fourth quarter ended March 31, 2009. Net profit was up only 7 per cent over the same period last financial year (YoY), but dipped 2.1 per cent sequentially (QoQ). The company's revenue at Rs 7,172 crore was up 18.5 per cent YoY but declined 1.5 per cent QoQ.

TCS does not provide guidance but the company’s CEO & Managing Director S Ramadorai asserted that despite the “unpredictable operating environment, TCS crossed the $6 billion milestone in revenues”.
 

MODEST GAINS
	Net profit	Revenue
Full year 08	5026	22863
Full year 09	5256.4	27812
YoY %	5	23
Q4 08	1245	6050
Q4 09	1333	7172
YoY %	7.06	18.54
QoQ%	-2.1	-1.5

The senior management, however, admitted to future pricing pressure. It added that of the top 100 clients, over 40 per cent are seeing a drop in revenue and close to 50 per cent a drop in profits. Discretionary spend is still under pressure and the company has witnessed delays in some deal ramp-ups.

TCS has also ruled out salary increases. In terms of variable pay, 95 per cent of TCS employees (up to the middle level) will get 95 per cent of the variable pay, the middle rung will get 94 per cent, and senior employees will be 92 per cent. TCS has 143,761 employees on its rolls.The company said it will not apply for any additional H1B visas as of now.

TCS added 36 new clients in the current quarter (against 41 in the trailing quarter), closed seven large deals, and is tracking 20 large deals. After the recent cash acquisition of Citigroup Global Services Limited, the company has around Rs 4,300 crore in cash. The company made a forex loss of Rs 192 crore.

The silver lining to the cloud was that the banking, financial services and insurance (BFSI) sector, which accounts for 42.8 per cent of its revenues (and was expected to be hit badly), was up 0.9 per cent. Fixed-price contracts in the current quarter went up 1.6 per cent. Top client revenue dipped by 0.4 per cent, but the top five client revenues went up 1.3 per cent.

As expected, TCS is moving more business to offshore locations such as India. The offshore revenue went up by 4 per cent in the current quarter.

TCS’ business process outsourcing (BPO) revenue grew 5.3 per cent during the same period. The US accounts for 57.4 per cent of the company’s revenues and the UK 28.6 per cent. India revenues were up 1.4 per cent for the quarter under review, to account for 8.2 per cent of total revenue.