Mumbai: In the past three months, shares of Infosys Ltd have outperformed those of Tata Consultancy Services Ltd by about 22%. The September quarter results announced by the two companies support this shift in investor preference. While TCS’s earnings disappointed the Street, Infosys’ Q2 earnings were marginally ahead of estimates.
While Infosys’s revenues were more or less in line with expectations, growing by 3.3% in constant currency terms, operating profit margins were better than expected at 21.7%.
Of course, operating profit growth remains weak at 0.4% year-on-year, but investors are seeing Infosys as a company in an investment phase, and are willing to overlook weak profit growth, for now. Besides, margins did improve by 120 basis points sequentially, unlike TCS, whose margins fell to a nine-quarter low in Q2.
On the main metrics that investors are focused on, such as deal wins and revenue growth, Infosys continues to do well. Revenues grew 11.4% in constant currency terms, which translates to slightly under 10% growth after adjusting for the impact of acquisitions. It reported strong double-digit growth in nearly all of its business verticals, barring retail, which grew just 1% and dragged down overall growth. “Business in the retail vertical is closely linked to consumer sentiment, which has been weak lately owing to uncertainties in the global economy," the company said in a press conference.
Importantly, it announced large deal wins worth $2.8 billion, which is far higher than preceding quarters, although it must be noted that only 10% of these were from new deal wins.
Infosys’s guidance for the year, however, remains conservative. It expects to grow by 10% at best this year, despite growing by over 11.5% in the first half of the year. This implies growth of about 8% in the second half in reported terms, and only about 6.5% growth on an organic basis.
But as an analyst at a multinational brokerage says, “It does look like Infosys is being overly conservative, as the current guidance implies nearly no growth in the remaining two quarters on a sequential basis."
Given the disappointment at TCS, and with limited options in the markets, investors may well continue to keep the faith in Infosys. Infosys shares were trading 3.3% higher in the pre-market session on the New York Stock Exchange at the time of writing.