India's top software services exporter, Tata Consultancy Services, on Monday beat forecasts with a 37% rise in quarterly profit as a growing outsourcing business offset the impact of a stronger rupee and wage hikes.
The company, which added 54 new clients in the June quarter, expects the business momentum to continue as it bags more large outsourcing contracts from Western clients seeking to cut costs.
"In terms of customer demand, we continue to see strong demand in the banking, financial services, telecom and retail sectors," N. Chandrasekaran, head of global sales and operations, said in a statement.
At a press conference, he said the company was negotiating contract renewals at an average price increase of 3% to 5%, and was looking for 5% price rises for new contracts.
Tata Consultancy, part of India's Tata group that has diverse interests including steel, salt and cars, said on Monday net profit in April-June rose to 11.86 billion rupees (US$294 million) from 8.63 billion rupees a year ago under U.S. accounting rules.
That compared with a mean net profit estimate of 10.79 billion rupees in a Reuters poll of 10 brokerages.
Chief Financial Officer S. Mahalingam said Tata Consultancy had been able to mitigate the impact of the rupee's rise and wage hikes on its margins in its fiscal first quarter by hedging, increasing productivity and cutting costs.
"Compared to a year ago, the margin position coming into this financial year remains stronger and we will continue to manage this aspect of our business throughout the year," he said.
Last week, Infosys Technologies, India's No.2 software services exporter, beat expectations with a 35% jump in quarterly profit, boosted by tax gains, but said a rising rupee was squeezing margins.
The rupee, which rose more than 6.5% against the dollar in the June quarter, poses a big problem for software services exporters that get about 60% of their revenue from the United States.
Mumbai-based Tata Consultancy, whose revenue rose 26% to 52.03 billion rupees, had about $2.5 billion in currency hedging as of end-June, up from $1.2 billion at the end of March.
Analysts say every 1% rise in the rupee against the dollar shaves 30-50 basis points from operating margins of software services exporters.
Tata Consultancy, whose clients include General Electric and ABN Amro, said 8,706 staff joined in the quarter, taking its total headcount to 94,902.
Ahead of the announcement, shares in Tata Consultancy, which has a market value of $27.6 billion, ended down 0.8% at 1,127.90 rupees in a Mumbai market that rose 0.25%.