Tata Consultancy Services quarterly profit up 4.7 pct to $261M; Indians head home to cut costs

TCS quarterly profit up 4.7 pct to $261.2M

MUMBAI, India — Tata Consultancy Services Ltd., India’s largest outsourcing company, said Monday that net profit for last quarter grew 4.7 percent, to 13.14 billion rupees ($261.2 million), despite shrinking volumes as the company pulled thousands of Indian employees back home to save on costs.

Revenues for quarter ending March 31 were 71.72 billion rupees ($1.4 billion), up 18.6 percent over the same quarter last year, but just 1.5 percent higher sequentially.

Quarterly profits declined 2.8 percent on a sequential basis and volumes shrank 2.65 percentage points, as the company battled cost pressures and waning demand from its U.S. and European customers.

Net profits for the year ending March 31 fell 10.1 percent to $1.12 billion, due to foreign exchange losses, while revenues came in at a record $6 billion, up 23 percent year on year, the company said.

“Overall it has been a good performance in a very tough environment,” said chief operating officer N. Chandrasekaran.

More than half of TCS’s top 100 clients are reporting declining profits, and that means cost pressures will continue to squeeze TCS into 2010, he said.

“Many of our clients are going through tough times,” he said, adding that manufacturing, telecom and information technology companies have been especially hard hit.

TCS has focused on controlling costs by pulling back thousands of Indian employees who had been working on projects in the United States.

That pushed the amount of work done in India — rather than overseas, where most clients are located — up 3.1 percentage points last quarter, to 45 percent, saving the company 1.31 billion rupees ($26 million) on employee costs.

“We are going to be doing a lot more offshore work,” said chief executive S. Ramadorai. “The business models are changing,” he added.

Executives said Monday none of the company’s 1,000 U.S. workers — a minuscule portion of its 143,761 global work force — have been laid off.

TCS continues to hire, both in India and the U.S.

Chandrasekaran said TCS plans to hire 250 young recruits for its Cincinnati campus in the next three to six months.

Globally, TCS added a net of 32,354 employees last fiscal year and has made 24,885 offers for next fiscal year.

The company is sitting on cash reserves of 43 billion rupees ($854.9 million).

Dipen Shah, an analyst at Mumbai’s Kotak Securities, said the results were “marginally below expectations,” and noted that volumes fell in the fourth quarter, even with the integration of Citigroup’s India-based business process outsourcing unit, which TCS said it would buy for $505 million last October.

“That indicates they are probably having more clients under pressure and finding it difficult to scale up business from existing clients,” he said.

“I would not be too positive on the company unless the U.S. and European situations improve,” he added.