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Tata Consultancy's second-quarter profit beats forecasts

Digital business grows 31% on rising investments in new technologies

MUMBAI (NewsRise) -- Tata Consultancy Services, India's largest software exporter, posted a better-than-expected second-quarter net income as a surge in investments in new digital technologies fueled growth in revenues.

The company, known as TCS, said net income in the quarter ended in September was 64.46 billion rupees ($985 million), compared with 65.86 billion rupees a year earlier, according to a statement. Revenue grew 4.3% to 305.41 billion rupees. Analysts had expected a profit of 62.54 billion rupees.

"We continue to gain share in the fast-growing digital spend of our customers," TCS Chief Executive Rajesh Gopinathan said in a statement. The revenue expansion was driven by strong business volumes that grew more than 3% sequentially, he said.

Digital business grew 31% from a year earlier, accounting for 20% of the overall revenue, Gopinathan said.

The results of TCS, the first to report quarterly earnings among Indian software exporters, augur well for the nation's information technology sector amid concerns companies could report muted financial performance in the second quarter because of a slowdown in the U.S. financial services and retail industries. The two sectors together accounted for a dominant share of Indian IT companies' revenues.

TCS said most businesses, barring financial services and retail, grew above 9.5% in the last quarter. North America, which accounts for 54% of the revenue, grew barely 1.4% sequentially, weighed by the slowdown in financial services and retail spending.

Gopinathan said the softness in the retail business is slowly "bottoming" out.

TCS Chief Operating Officer N. Ganapathy Subramaniam said headwinds across sectors are slowly abating. "We expect stronger and steadier growth ahead."

The $116 billion Indian software export industry has been grappling with changing sourcing patterns of clients, as new internet-based technologies such as cloud computing and automation are fast replacing stock IT services that account for up to 85% of the revenue.

Increasing protectionist stance in major western markets, along with unprecedented competition from smaller startups, have also added to the woes of Indian IT.

TCS' operating margins expanded 1.7 percentage points sequentially to 25.1% in the quarter, aided by a decline the value of Indian rupee against the U.S. dollar and cross-currency gains.

Smaller rivals Infosys and Wipro are set to report their second-quarter earnings over the next two weeks.

Shares of TCS gained 1.9% in Mumbai trading on Thursday before the earnings were released, while the benchmark S&P BSE Sensex closed up 1.1%.

--Dhanya Ann Thoppil

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