Tata Benefits From Strong Outsourcing Demand

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Demand for services from India is on a roll again, with Tata Consultancy Services (TCS), India's largest outsourcer, reporting strong growth in revenue and profit for the quarter ended Sept. 30.

TCS reported on Thursday revenue of US$2 billion for the quarter, up by 30 percent from revenue in the same quarter last year. Net profit was $461 million, up by 35 percent.

The company's results are in conformance with U.S. GAAP ( Generally Accepted Accounting Principles).

India's second largest outsourcer, Infosys Technologies, last week also reported strong revenue and profit growth for the quarter. HCL Technologies, another large Indian outsourcer, also reported this week strong revenue growth though its margins were down because of increased hiring and salary hikes.

TCS has hiked its hiring target for its fiscal year ending March 31, 2011, to 50,000 from an earlier 30,000. These are estimates of gross hires, and do not reflect the number of staff who leave during the year. In the quarter to Sept. 30, gross hires were 19,293, while net additions were 10,717, taking total staff to 174,417.

The increase in hiring in India's outsourcing industry is driven both by an improvement in business as well as high staff attrition rates across the industry.

TCS' staff attrition rate was 14.1 percent in the quarter, up from 13.1 percent in the previous quarter, and 11.4 percent a year earlier. After a peak in attrition in July, the situation is however now under control, said Ajoy Mukherjee, TCS' head of human resources at a press briefing in Mumbai, that was also web cast.

There is considerable anxiety still among Indian outsourcers about the durability of the recovery in the U.S., and the economic austerity programs in Europe. The macro-economic environment is uncertain and will continue to be so in the foreseeable future, said N. Chandrasekaran , TCS' CEO and managing director. North America accounted for 53.7 percent of TCS' revenue in the quarter.

HCL's CEO Vineet Nayar said on Wednesday that U.S. customers are buying in the hope that the recession is over, even as the macro-economic indicators in the U.S. are still bad. He does not know if the company will continue to invest in IT at current levels, he added.

However, Indian outsourcers are right now benefiting from a surge in demand for their services. Analysts said some of this demand is business that was postponed by customers during the recession.

TCS said its revenue grew in the quarter across all its markets, and across all industry verticals that it addresses. Banking, financial services, and insurance markets accounted for 44 percent of revenue. Customers are likely to hike their IT budgets for next year, Chandrasekaran 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

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