TCS Q1 Net Jumps 27%, Signals Higher US Outsourcing Demand

But co's profits down 7.9% q-o-q due to a jump in salary costs

India's biggest software exporter Tata Consultancy Services has joined global rival Accenture in signalling higher demand for outsourcing from customers in the US seeking to cut costs, and posted a 26.7% rise in its first quarter profit from last year. 

Rising salary costs, however, dragged down TCS' net profit for the June quarter by 7.9% to . 2,415 crore from the fourth quarter ended March this year. 
India's $60-billion outsourcing sector is looking for positive cues amid growing economic uncertainties in top markets such as the US and Europe — TCS' 31.4% growth in first quarter revenues to . 10,797 crore provided some relief. As top customers, General Electric and Citigroup, which seek to cut costs and become more profitable, are increasing the outsourcing of non-core, back-office and software development projects to vendors like TCS. 
India's number two software firm Infosys, which announced its April-June quarter earnings earlier this week, also saw its first quarter profit fall by 5.3%, compared with the fourth quarter of last year on increased salary costs. While Infosys raised concerns on demand ahead for outsourcing because of economic uncertainties in the US and Europe, TCS denied any such trend. "While we are watchful, as of now we continue to see sustained demand for our services," TCS CMD N Chandrasekaran said on Thursday. TCS scrip closed down by 2.2% to . 1,123.70 on BSE on Thursday. 
Investors and experts tracking the sector were anxious about the prospects ahead after Infosys provided a muted forecast and raised concerns about macroeconomic worries affecting demand for outsourcing business. 
"While TCS, too, saw its profits get affected because of wage hikes, the management commentary hinted at strong demand, which is quite the opposite of what Infosys projected," said an analyst at Mumbai-based office of a multinational brokerage firm. Last month, consulting firm Accenture reported better-than-expected third quarter profit growth of 28% and raised its outlook for the year citing strong demand for services. "TCS results were above our estimates. The 7.4% volume growth was the highlight. More importantly, the growth was broadbased, which lends a degree of stability, we believe. The management is confident about client spending, while being cautious on the macro scene," said Dipen Shah of Kotak Securities. 
Chandrasekaran did not deny the economic uncertainty, butsaid it has not affected demand for outsourcing yet. "This uncertainty will continue. In some countries, unemployment is an issue. In the Middle East, there is unrest. There was a natural calamity in Japan. These things put pressure on the environment," he said. 
"But businesses have their own plans, a set of actions to go after efficiency. In that environment, we continue to see momentum," he added.