Tata, HCL Benefit From a Growth in Offshoring

Indian outsourcers Tata Consultancy Services (TCS), and HCL Technologies reported this week strong revenue and profit growth for the quarter ended March 31, as outsourcing by clients to offshore locations picked up.

TCS, the largest Indian outsourcer, said on Thursday that its revenue in the quarter was US$2.2 billion, up by 33 percent from the same quarter last year. Net profit was $531 million, a growth of 25.4 percent over last year.

For the fiscal year ended March 31, TCS said revenue had grown by 29 percent to $8.2 billion, and net profits grew by 31 percent to $1.9 billion.

The company added 11,700 staff in the quarter, taking the total to 198,614 as of March 31.

The macroeconomic conditions remain uncertain because of various crises including in the Middle East and Japan, but TCS is getting positive signals from clients, N. Chandrasekaran, the company’s CEO and managing director, said at a press conference in Mumbai that was webcast.

Although IT budgets are flat, Indian outsourcers have benefited as customers seek to maximize their fiscal resources by moving work offshore, said Jimit Arora, research director at Everest Group. The market is healthy and growing, and there is enough demand for offshoring that will drive growth for tier-one players, he added.

HCL Technologies, another large Indian outsourcer, reported on Wednesday revenue of $915 million, up 33.5 percent from the same quarter last year. The company said that net profit had reached $103 million, up 35 percent from the same quarter last year.

The market is still in a post-recession phase: spending on IT is still flat, and there are fewer large orders, Vineet Nayar, the company’s vice chairman and CEO, told reporters in a conference call.

Infosys Technologies, India’s second largest outsourcer, disappointed investors and analysts by reporting revenue growth of about 23.6 percent and net profit growth of 18.9 percent for the quarter.

The company’s risk aversion and an impending management succession may slow down the company in comparison to its competitors, analysts said. Two key executives of the company, who were also board members, announced their resignations from the company. Infosys said the January-March quarter has been traditionally soft in comparison to earlier quarters.

As the offshore business booms, problems such as staff attrition and growing staff costs have returned.

While it is still easy to hire staff from the ranks of new graduates, there is strong competition for experienced talent, HCL’s Nayar said. The company tends to hire more experienced people, as customers prefer to deal with seasoned staff, and projects get completed on time, he added.

HCL’s margins may drop in the July-September quarter when it plans to have a round of wage hikes, Nayar said.

TCS plans to increase salaries by 12 to 14 percent for its staff in India, Ajoy Mukherjee, the company’s head of global human resources, said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John’s e-mail address is john_ribeiro@idg.com