Outsourcer Tata posts strong revenue and profit growth

India's largest outsourcer cost cuts and improved productivity to achieve strong quarterly results, but growth rates are not likely to be as high going forward

India's largest outsourcer, Tata Consultancy Services, Wednesday reported strong growth in revenue and profit, despite earlier concerns that the Indian outsourcing industry would be badly hit by a weak dollar, and a crisis in the U.S. subprime mortgage market.

The company's revenue for the quarter, ended Dec. 31, was 59 billion rupees ($1.5 billion at the exchange rate on the closing day of the quarter), up by 22 percent from the same quarter in the previous year. Profit increased by 20.5 percent to 13.3 billion rupees.

The company said it had improved its operating margin despite a 2.3 percent appreciation of the rupee against the dollar during the quarter, by cutting costs and improving productivity. The rupee has gained about 12 percent over the dollar in the last year.

Infosys Technologies, India's second-largest outsourcer, said last week that its revenue for the quarter ended Dec. 31 increased by 32 percent, to $1.1 billion, from the same quarter in the previous year. Profit for the quarter rose by 42.2 percent to $310 million.

Revenue growth rates are, however, not likely to be as high going forward, mainly because the companies already have large revenue bases, according to analysts.

In the application development and maintenance market, where Indian companies are dominant players with about 36 percent market share, the opportunity to increase revenue isn't very large, said Siddharth Pai, a partner at Technology Partners International. The company is a sourcing consultancy firm in Houston.

Indian companies are looking at new services lines, but it will take some time for these businesses to be key revenue earners, Pai said.

Indian outsourcers also compete for staff with the Indian operations of multinational services companies like Accenture and IBM. Quality staff is increasingly harder to hire, and salaries are on the upswing.

Infosys, for example, added 8,100 employees in the last quarter, taking its staff to 88,601 at the end of December. Tata added 4,037 in the quarter, giving it a headcount of staff to 108,229. The company's attrition rate at 12.2 percent was, however, higher than in the previous quarter.