Top software services exporter reports better than expected results, on rising demand from western clients. But stock price dips on weakness in IT segment 

Tata Consultancy Services (TCS), the country's largest IT software services exporter, today announced a 31.1% y-o-y increase in fourth-quarter net profit, on rising demand from western clients for outsourcing services. The Tata Group unit said net profit rose to Rs2,623 crore in the three months to 31 March 2011, according to Indian GAAP.

The software exporter, whose major clients include Citigroup, General Electric, British Airways and Sony Corp, said excellent execution, constant customer focus boosted the numbers and that markets in the US and Europe were improving. Revenues also grew by 31.3% y-o-y to Rs10,157 crore in the March quarter.

The results were slightly better than what the market expected. However, the TCS stock slipped after the announcement to Rs 1,191, down 2.23% at the close on the Bombay Stock Exchange, after gaining over 2% in the morning session. The BSE-IT index was down 0.61%, whereas the broader market gained by 0.67%.

Operating margin was down by just 6 basis points at 28% on a quarter-on-quarter basis. Overall for the financial year 2010-11, TCS reported net profit of Rs9,068 crore, a growth of 29.5% over the previous year. Revenues for the year stood at Rs37,325 crore, up 24.3% from the previous year. The company said it would pay a final dividend of Rs8 per share.

N Chandrasekaran, chief executive and managing director, said, "Excellent execution and a constant focus on the customer has helped TCS round off a sterling performance for FY11, with strong growth in the fourth quarter, while maintaining margins at historic highs."

The company said it plans to increase wages by 12%-14% for India-based staff as it deals with high attrition (14.4%) in a tough environment. It would raise wages by 2%-4% in major overseas markets and 2%-14% in emerging markets. Mr Chandrasekaran  said wage increases and currency fluctuations pose headwinds for growth. During the January-March quarter, the company added 11,700 employees, taking its total headcount to over 1.98 lakh, the company said.

"Looking ahead, the demand environment continues to be vibrant. There are opportunities across markets and industries," Mr Chandrasekaran said. "Our nimble organisation structure, together with our full-services strategy and domain-intensive solutions gives us a great platform to sustain growth. We continue to shape the adoption of next generation technologies by investing in new areas like mobility, analytics, social media and sustainability solutions."

Growth in the fourth quarter was led by developed markets of the US and Europe with strong contribution from Asia Pacific, the Middle East and Africa. The company said all verticals returned to the growth path this year. Among the company's key wins was a partnership with a US-based speciality retailer to implement a customer-centric merchandizing solution, and working with one of the world's leading automotive firms to support their end-to-end enterprise application integration and infrastructure services across the global business chain.  

Sentiment around IT stocks has been depressed over the past week after the market was disappointed with the Q4 numbers by Infosys Technologies, the country's No.2 software services exporter. Analysts, however, expected a better performance from TCS. Yesterday, HCL posted a 33% rise in net profit at Rs468.20 crore for the January-March quarter.