TCS OFFERS 1:1 BONUS

Battling Lower Billing Rates And Dwindling Contracts,Tech Major Was Still Able To Report A 4.7% Jump In Net Profit

INDIA'S largest software exporter Tata Consultancy Services (TCS) saw slower growth in net profit and revenues in the March quarter, but sprung a pleasant surprise on shareholders with an unexpected 1:1 bonus issue. This is the second bonus issue by the company since it went public five years ago. It had announced a similar bonus in 2006.
    Bearing the brunt of the global slowdown, TCS battled price re-negotiations and drying up of new software development projects, but maintained operating profit margins by moving thousands of employees from expensive onsite locations to offshore sites, bringing down travel expenditure and other expenses. The company said more than 40-45% of its customers have been reporting decline in revenues and more than 50% were reporting drop in profits.
    "By focusing on operational efficiencies, collecting cash more efficiently and driving an employee-based cost-control programme, we have improved our operating margins by 104 basis points... We continue to drive our cost-control programme and have held down our costs significantly," TCS CEO and MD S Ramadorai said. The company has added clients across industry segments, including financial services.
    The company's net profit grew 4.7% year on year to Rs 1,314 crore, while revenues grew 17.7% to Rs 7,171.8 crore in the fourth quarter of FY09. However, for the first time since it went public in 2004, TCS has recorded a quarter-on-quarter decline of 1.4% in revenues.
    "Sometimes clients want to re-negotiate price, sometimes we work on a different cost structure. Overall pricing impact will continue into the next year," its COO N Chandrasekaran said about the outlook on the pricing environment. The company expects decline in pricing to be in single digits for the current fiscal. TCS bags 7 mega-dollar deals in Q4
THOUGH TCS' forex loss at Rs 192 crore for the March quarter was significantly higher than its nearest rival, Infosys Technologies, it was lower than the Rs 250 crore it incurred in the December 2008 quarter. Analysts expect the declining trend in forex losses to continue. "TCS has not entered into new hedges given weakening trend of the rupee against the dollar. This may help the company reduce forex losses further," said Viju George, IT analyst at Edelweiss Securities.
    During Q4, it bagged seven large multi-million-dollar deals, of which two were from the government and hi-tech industries. It added 36 clients. However, Mr Chandrasekaran said sectors such manufacturing, hi-tech and telecom were under stress. The company is seeing growth in BPO and infrastructure outsourcing.
    CFO S Mahalingam termed FY09 as a year of cost management. "It has been a year of cost management... We made steady progress at rationalisation of people throughout the year and we brought down employee costs by Rs 121 crore. Travel also decreased 17% quarter on quarter," he said.
    Citigroup's India captive, which TCS acquired in the December 2008 quarter, has started yielding revenues. Including the Citigroup acquisition, the company has added a net of 13,418 employees. All increments for the current year have been frozen, said VP and head (global HR), Ajoy Mukherjee.
    Prior to the result announcement, the TCS stock lost 2.2% to close at Rs 560.40 in a flat market on Monday.