Post covid, Infosys races ahead of TCS on revenue, profit growth2 min read . Updated: 15 Oct 2020, 08:21 AM IST
- In past 3 quarters, Infosys’s dollar revenues have risen 2.1%, while TCS’s have fallen 2.9%
- Deal wins by Infosys have been rising each quarter, and it’s heartening that they didn’t drag margins
Infosys Ltd has been beating Tata Consultancy Services (TCS) Ltd on growth metrics for a while now. Post-covid, the extent of outperformance has only increased. In the past three quarters, Infosys’s dollar revenues have risen 2.1%, while TCS’s revenues have fallen 2.9%. What’s more, thanks to a sharp rise in the former’s profit margins lately, its operating profit has jumped 18.1% post-covid, while in TCS’s case, profit has risen only 1.7%.
“Covid has acted as a catalyst for acceleration in IT spends. We believe that Infosys is the best way to play the transformation and acceleration theme," analysts at Kotak Institutional Equities said in a 30 September note to clients.
While TCS is also benefitting from the acceleration in tech spending, especially around cloud and digital services, it just so happens that momentum is on the side of Infosys.
Its large deal wins have kept rising quarter after quarter, with a recent deal with Vanguard being the biggest ever signed by the company. The fact that these large deal wins haven’t dragged margins down is heartening as well. The company has said operating margins are expected to rise to 23-24% in the financial year 2020-21, compared to a margin of 21.3% in FY20.
TCS has also faced relatively higher pressures on the supply side, and some of its clients in areas such as Europe and India dragged its overall growth numbers. Infosys’s relatively more concentrated portfolio has delivered better growth in recent quarters, although analysts say that long-term prospects at TCS remain strong owing to its well-rounded portfolio of services.
“Clients are partnering with us in their digital transformation journey, as well for supporting them with cloud services… The fact that our revenues are growing year-on-year, while those of competitors are falling shows that we are increasing market share," Salil Parekh, chief executive officer of Infosys, said in a conference call with analysts.
While the company raised its revenue growth guidance for FY21 to 2-3%, from 0-2% earlier, the implied growth for the second half of the year remains a bit muted. The implied sequential growth in Q3 and Q4 is about 0.3% at the lower end of the guidance and 1.5% at the higher end, says an analyst. “This suggests the company is still being conservative about growth in the second half; our estimate is that it will revise its guidance upward again while announcing December quarter results," said an analyst at a domestic brokerage, requesting anonymity.
Note that Infosys shares are among the top performers among top-tier IT stocks, having risen by 42% from its pre-covid highs in February. In comparison, TCS shares are up only 25% despite the prop of a large buyback at a handsome premium.
Infosys’s American Depository Receipts were 5% higher at the time of writing, showing that the results were received well by investors.