UPDATE 1-India's TCS profit up 29 pct, sees slow recovery

Fri Oct 16, 2009 10:15am EDT

* Q2 net profit rises to 16.24 bln rupees from 12.62 bln

* Deal pipeline healthy, chasing 20-25 large contracts-CEO * TCS shares up 2.8 pct before result, up 150 pct in 2009 (Adds details)

By Pratish Narayanan

MUMBAI, Oct 16 (Reuters) - Tata Consultancy Services (TCS.BO) beat forecasts with a 29 percent rise in quarterly net profit helped by demand from recession-hit financial customers, but said a sharp growth rebound in the near term was unlikely.

India's top IT services exporter has a good business pipeline and is pursuing 20 to 25 large outsourcing deals, Chief Executive N. Chandrasekaran said, but its Western customers' technology budgets were still being tightly managed.

"The recovery is beginning to happen for us definitely and we are seeing growth, but the growth is going to be slow," Chandrasekaran, who took over as the chief executive earlier this month, told reporters. TCS said there was good demand in the emerging markets such as Asia Pacific and Latin America and stability in the United States, which accounts for half its revenue, but the economic environment remained challenging in Europe.

India's nearly $60 billion outsourcing sector is seeing some signs of revival in business prospects after getting badly hit by the global economic slowdown and financial sector turmoil that had forced clients to shut the tap on technology spending.

Mumbai-based Tata Consultancy was seeing renewed demand from banking and financial sector, a key client base, but said manufacturing and telecoms remained under pressure. "We think the sectors will take time to show growth," said Chandrasekaran. "However, we think we have bottomed out and we are likely to see more stability from here."

Rising competition from global players such as IBM (IBM.N) and Accenture (ACN.N) and new rivals from a wave of M&A in the global technology sector, with Oracle ORCL.O and Dell DELL.O snapping up targets, were worries for Indian players.

Ahead of the announcement, shares in Tata Consultancy, which provides services such as consulting, system integration and back-office outsourcing, ended up 2.8 percent at 599 rupees in a Mumbai market .BSESN that rose 0.7 percent.

The company, part of the diversified Tata Group that spans commodities autos and services businesses, said net profit in July-September rose to 16.24 billion rupees ($351 million) from 12.62 billion rupees a year ago under U.S. accounting rules.

A Reuters poll of 14 brokerages had forecast a net profit of 15.15 billion rupees for the firm which counts Citigroup (C.N), General Electric (GE.N), General Motors, Lloyds TSB (LLOY.L), Ferrari and American International Group among its clients. Infosys Technologies (INFY.BO), India's No. 2 software services exporter, last week slightly beat estimates in its quarterly net profit and raised its forecast for revenue and earnings in dollar terms for the full year to March. [ID:nBOM359212]

IBM raised full-year outlook and posted higher-than-expected quarterly profit on Thursday as its growing focus on higher margin software and services helped it cope with weak technology spending. [ID:nN15266489]

Shares in Tata Consultancy, which the market values at $25 billion, have soared 150 percent so far this year, sharply outperforming a 80 percent rise in the Mumbai market and 96 percent rise in the IT sector index .BSEIT. ($1=46.3 rupees) (Writing by Sumeet Chatterjee; Editing by John Mair)

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