US subprime cloud could have silver lining for Tata

Tata Consultancy Services Ltd, India's largest computer-services provider, said US clients are likely to send more contracts offshore to cut expenses as the world's largest economy falters.

"We think we will get a fair share of this as we look at corporations that are reducing their costs," Chief Executive Officer S. Ramadorai said. The company remains "cautious" because "when you look at the US implications of the subprime crisis and the results that are coming out, that's a cause of worry", he said.

Analysts at JPMorgan Chase & Co and Lehman Brothers Inc, who weren't reassured by the company's comments, cut earnings estimates after Tata Consultancy reported the slowest profit growth in two years. The shares have posted their worst start to a year on concern its biggest clients, US banks, may scale back orders as losses mount in the subprime mortgage market.

"Management commentary on the demand outlook for fiscal 2009 was not convincing, and we believe that this will not allay investor concerns" on growth, Govind Agarwal, an analyst at UBS AG in Mumbai, said in a note to clients. He rates the stock as "buy".

The US economy may already be in recession, economists at Goldman Sachs Group Inc forecast earlier this month, joining counterparts at Morgan Stanley and Merrill Lynch.

Tata Consultancy manages computer networks, payroll systems and call centers among other services for clients including Citigroup Inc, ABN Amro Holding NV, Roche Holding AG, and General Electric Co.

Net income in the three months ended Dec 31 increased 20 percent to 13.3 billion rupees ($339 million) from a year earlier, as gains in the rupee eroded sales in the United States. Sales rose 22 percent to 59.2 billion rupees.

Tata Consultancy fell 2.1 percent to 924.70 rupees at 10:57 am on the Bombay Stock Exchange. They fell 11 percent last year as India's benchmark Sensitive Index gained 47 percent.

Manoj Singla, an analyst at JPMorgan, cut an estimate for earnings on a per-share basis for the year ending March 31, 2009, by 3 percent, and sales by 1 percent.

"We maintain our view that there will be some slowdown for Indian IT players from financial customers," Singla said, referring to the nation's information-technology sector.

"We believe that events in the US over the next 1-2 months will be crucial - a further economic slowdown could mean IT budget pressures from other customers as well."

Harmendra Gandhi, an analyst at Lehman Brothers in Mumbai, also cut his earnings-per-share estimates for the current fiscal year and the 12 months ending March 2009.

Banks, financial-service providers and insurance companies accounted for 44 percent of Tata Consultancy's revenue in the quarter, an increase from 43 percent in the previous quarter.

Agencies

(China Daily 01/18/2008 page16)