Tata Consultancy Services Ltd (TCS) has been outperforming Infosys Technologies Ltd rather consistently ever since the recovery from the financial crisis. The recently concluded quarter ended December was no different. TCS managed a healthy 5.7% growth in volumes, much higher than Infosys’ reported volume growth of 3.1%.
Besides, its gross employee addition stood at as high as 20,219 staffers on a consolidated basis. Even after accounting for attrition, net addition stood at 12,497 employees, representing a 7.2% increase in the employee base compared with the September quarter. This reflects a healthy outlook for volume growth in the following quarters as well. Infosys, on the other hand, added 5,311 employees last quarter, increasing its headcount by around 4.3% from the September quarter.
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Even in terms of the future outlook expressed by the management of the two companies, TCS sounds far more sanguine. It simply said that demand is healthy and that the pipeline of deals is strong. Infosys added a cautionary note that there remains some bit of uncertainty in the global economy, due to which customers are engaging mainly in short-term projects.
All of the above indicates that the two companies are perhaps treading different paths. The stock markets have already been pricing this. In the past six months or so, since the results season for Q1 FY11 commenced, TCS shares have risen by 44%, while the rise in Infosys shares was much lower at 13%.
This isn’t a recent phenomenon either. As pointed out earlier, TCS has been outperforming Infosys in terms of revenue and profit growth soon after the global economy started recovering. At the peak of the crisis, in the quarter ended December 2008, TCS had reported revenue of $1.48 billion (Rs6,750 crore today) and Ebit (earnings before interest and tax) of $367 million. In the same period, Infosys revenue stood at $1.17 billion, while its Ebit was higher than TCS at $373 million.
In the eight quarters that have passed since, TCS’ revenue and profit have grown at a compounded quarterly growth rate (CQGR) of 4.7% and 6.4%, respectively. Infosys’ revenue and profit have grown at a CQGR of 3.9% and 3.2%, respectively. TCS’ Ebit, having grown at double the rate vis-a-vis Infosys, is now 26% higher than that of its peer, a far cry from the situation two years ago when its profit had dipped below its smaller competitor.
The company’s December quarter performance and its employee addition suggests that the outperformance should continue. Even so, since TCS shares have been performing much better than its peers in recent times, short-term gains should be limited. In any case, reported revenue and profit weren’t much higher than consensus estimates.
Graphic by Yogesh Kumar/Mint
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