TCS looks to digital technology to boost growth

By Aman Shah and Nivedita Bhattacharjee

MUMBAI (Reuters) - Tata Consultancy Services Ltd , India's biggest software services exporter, is investing in new technologies such as cloud computing, joining rival Infosys Ltd in chasing high-margin outsourcing contracts to respond to growing competition.

"You'll never see a $100 million deal but there will be lots of smaller deals adding up to a digital initiative which will be larger," TCS Chief Executive N. Chandrasekaran said, after the company reported a 26.9 percent rise in quarterly profit.

He said digital technology, which includes cloud computing and mobile applications, was a "multi-billion dollar opportunity" for IT outsourcing services providers.

 

Growing competition and slowing growth has forced India's outsourcing companies, which had thrived for decades by writing software codes and providing IT infrastructure services, to look to higher margin services to increase revenues.

Research firm Gartner this month cut the worldwide IT spending growth outlook for 2014 to 2.1 percent from an earlier estimate of 3.2 percent due to lack of product differentiation and availability of "viable alternative solutions."

Infosys, India's second-largest IT services exporter, last week said it would boost investment in cloud computing, smartphone apps and other new technologies to win more high-margin outsourcing contracts.

"I don't think anyone can afford to stay out of this sector. Digital has grown bigger than what the industry thought it would be, with all sectors getting into it," Ravi Menon, IT sector analyst with Mumbai-based Centrum Broking, said.

Retail, wealth management and banking are considered the frontrunners in the push for digitisation, as their customers do more business transactions over smartphones and tablets.

PROFIT UP, PIPELINE STRONG

TCS's consolidated net profit for the three months to June 30, its financial first quarter, rose to 50.58 billion rupees ($840.5 million) from 39.87 billion rupees a year ago, the Mumbai-based company said on Thursday.

That compares with analyst estimates of 48.86 billion rupees, according to Thomson Reuters data.

Revenue rose 22.9 percent to 221.11 billion rupees.

TCS, which counts Cisco and Hewlett-Packard among its clients, has increased profit over the last two years at a faster pace than rivals Infosys and Wipro Ltd , which have both had internal management changes.

The Mumbai-based firm is estimated to post revenue growth of 16 percent in the next 12 months, compared with Infosys' 8.3 percent and Wipro's 9.9 percent, according to Thomson Reuters SmartEstimates.

TCS, which does not provide any earnings forecast, said on Thursday fiscal 2015 that started on April 1 would be a better year than the last year, with the company looking to bid for at least 8 large outsourcing deals.

The company, which gets more than three-quarters of its revenue from the United States and Europe, said business volume grew 5.7 percent, led by a growth in North America, Europe, India and the Asia-Pacific region.

Shares in TCS, a unit of Tata conglomerate, closed 0.8 percent lower at 2,381.95 rupees before the announcement. The main Mumbai market index <.NSEI> ended up 0.2 percent.

($1 = 60.1800 Indian Rupees)

(Additional reporting by Patturaja Murugaboopathy in BANGALORE; Editing by Pravin Char and Jane Merriman)