Business - TCS makes marginal net profit in challenging market

Ramnath Subbu


MUMBAI: In a difficult market with increasing cost pressures, Tata Consultancy Services (TCS) on Thursday reported a 2.67 per cent growth in its net profit at Rs. 1,362 crore for the third quarter ended December 31, 2008, as compared to the same quarter in the previous year. The company’s revenues were at Rs. 7,277 crore, a year-on-year growth of 24.1 per cent.

TCS declared a quarterly dividend of Rs. 3 per share — its 18th consecutive quarterly dividend.

Operating margins were up 53 basis points at 24.76 per cent mainly due to increased off-shoring and productivity.

“In tough market conditions, TCS continues to perform in a stellar fashion, driving revenue growth through our diversified market presence and boosting our operational profitability by conserving costs and creating efficiencies,” TCS CEO and Managing Director S. Ramadorai said adding that, “in its 40-year history, TCS has focussed on institution building and value creation for all stakeholders. We have paid dividends for 18 consecutive quarters.”

“In a challenging market, TCS remained focussed on execution discipline and kept pricing stable and therefore managed to growth profitably,” Chief Operating Officer N. Chandrasekaran said. “We have closed some key deals across markets and sectors, acquired 41 new customers and have a healthy pipeline of deals across our diversified customer going forward. There are new opportunities emerging due to increase in integration activity as customers look to reduce costs and increase productivity. Although there was a ten-basis point drop in pricing quarter on quarter, going forward, we are going to see increasing pricing pressures but we are not going to drop prices just to bag orders.”

The company is following a comprehensive hedging policy on rupee-dollar and cross currency movements. It had a hedging loss of Rs. 250 crore during the quarter.

Nortel, which has filed for bankruptcy, is also a client of TCS but Mr. Chandrasekaran said it was not among the top 15 clients and accounted for less than 0.5 per cent of TCS’ revenues.

He added that there were sectors where there was increasing impact of slowdown like banking, financial services and insurance (BFSI), manufacturing and high-tech industries “but there is better growth in retail, pharmaceuticals and utilities.”

New clients


In terms of markets, TCS added six large clients including two new marquee customers during the quarter from North America — one above $100 million and the other above $250 million.

The company added over 30,400 people in the first nine months which is in line with its hiring plans for the year. “Our retention rates for both IT services and BPO have shown significant improvement in the current quarter. We continue to focus on improving utilization rates and employee productivity,” said Ajoy Mukherjee, Vice president and Head, Global Human Resources, TCS. The company is planning to make 24,800 campus offers in 2009-10.

During the quarter, there was a gross addition of 11,773 employees (net 8,692 employees) of which 8,704 were trainees and 1,696 were lateral recruits in India and 1,373 employees were added in overseas subsidiaries and branches.

The total employee base stands at 130,343 professionals and 52 per cent of the workforce had more than three years experience. The utilisation rate (excluding trainees) was 79.9 per cent and the attrition rate dropped to 11.9 per cent overall with 11.2 per cent attrition rate in the IT services business and 20.5 per cent attrition rate in BPO.