After acquiring a small French company last week, Tata Consultancy Services (TCS) says it is looking to make further acquisitions in Germany and Japan.
The plans were mentioned during a press conference after the Indian IT bellwether published its full-year earnings report, meeting expectations and confirming that the highly disappointing results posted by Infosys last week were not indicative of the state of India’s broader IT services sector.
For the fiscal year just ended, TCS reported net profits of Rs139.2bn on revenues of Rs629.9bn. Compare that with the previous year, when the company reported net profits of Rs104.1bn on revenues of Rs488.9bn.
In the twelve month period, the company added 153 new clients and a net 37,613 employees.
Shares in TCS dropped slightly ahead of the news, which came out after the markets closed in Mumbai, down 1.8 per cent to close at Rs1,456.65. Other Indian IT companies also saw their stocks fall on Wednesday, with HCL down 1.5 per cent to Rs751.30 and Infosys dropping 0.5 per cent to Rs2,283.85.
Gautam Sinha Roy, an analyst at Motilal Oswal Securities, commented: “Outlook for FY14 is better than FY13 with a good deal pipeline and strong performance expected across sectors.”
In a note to clients earlier this month, analysts at Barclays said Indian IT companies would see their revenues improve in the current fiscal year, driven by recovery in the US economy and rising discretionary spending. Steady growth was also forecast for the quarter ended in March and, the note added:
TCS and HCL Tech should continue to lead sector growth with 2.9% q/q growth for both, on our estimates. TCS could witness ~100bps negative impact on operating margins due to one-off expenditure of US$30mn in a recent settlement with employees. We expect both companies to maintain their constructive stance on operating environment and large deal flows.
India’s IT services companies have tied their fortunes to developed economies, where most of their clients are based. So, the recent turmoil in the US and eurozone economies could have prompted them to consider branching out.
TCS has been eyeing acquisitions in Japan and Germany for a while now, going for expansion into markets which currently aren’t its greatest source of growth but have potential. The company has seen even growth across geographies in the past fiscal year, with its US market growing 27 per cent, the UK 44 per cent and Europe 21 per cent, while Asia Pacific grew 27 per cent and India 16 per cent.
N. Chandrasekaran, chief executive of TCS, said during a press conference after the results were announced: “Definitely these are two markets we are interested in, they are growing markets, with a lot of global players. So we keep looking.”
But with reports that the company has been looking at the two markets going back to 2011, don’t hold your breadth for a deal.
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