TCS' revenue to grow at a lower rate than Infosys in FY23, FY24: Moody's
2 min read 16 Feb 2023, 12:45 PM ISTRating agency Moody's Investors Service expects 13 per cent revenue growth for Infosys and 8 per cent revenue growth for TCS in the fiscal ending 31 March
PremiumThe revenue growth of country's largest IT services company, Tata Consultancy Services (TCS) is seen lagging behind that of rival Infosys Ltd for this fiscal and the next. However, both the IT services companies are expected to grow at a moderate rate next financial year.
Rating agency Moody's Investors Service expects 13 per cent revenue growth for Infosys and 8 per cent revenue growth for TCS in the fiscal ending 31 March.
Moody’s on Wednesday affirmed "Baa1" rating to two major IT services companies – TCS and Infosys. In two separate statements, the ratings agency has also retained stable outlook for both the firms.
"Moody's Investors Service has today affirmed the Baa1 local currency issuer rating of Infosys Limited. The rating outlook remains stable," it said in a release.
It expects Infosys' revenues moderate to around 8 per cent in the next 2024 fiscal, while TCS' revenue growth to slow to around 5 per cent in fiscal years 2024 and 2025.
The rating affirmation reflects Infosys' position as one of the world's leading IT solutions and services providers with globally diversified, cost-competitive operations that translate into its sustained, strong profitability and robust credit profile, Kaustubh Chaubal, Moody's Senior Vice President said.
"Infosys' good corporate governance practices, reflected in its extremely strong balance sheet, large liquidity and net cash position, support its Baa1 rating," Chaubal added.
A vast majority of Infosys' workforce is based in India. As well, the company is exposed to changes in regulations and tax laws in India. Given this exposure, Infosys' rating is constrained at two notches above the rating of its country of domicile and incorporation, India (Baa3 stable), based on Moody's cross-sector methodology.
Moody's observed that a globally diversified operations, demonstrated track record in delivering strong operating results with industry leading profitability, large positive free cash for generation and minimal reliance on the Indian banking system allow Infosys to be rated two-notches higher than the Indian sovereign.
Moreover, Moody's said, the company's credit profile is strong for its Baa1 rating, given its long, successful and sustainable operational track record with gross debt/EBITDA below 0.3x and large free cash flow generation.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation and is a measure of company's operating performance.
Revenue growth prospects for IT companies could slow as corporates remain cautious with their discretionary IT budget allocations amid global uncertainties and fears of a looming recession.
But digital transformation trends, along with corporates' focus on cost optimisation and streamlining vendors, present an attractive opportunity for leading IT companies such as Infosys that have a wide product suite and capabilities to cater to increasingly complex businesses.
"Meanwhile, improving employee utilisation from hiring in prior years and steadily declining attrition amid global uncertainties will likely arrest any further margin pressure, with its EBITA margin remaining around 24 per cent over fiscal years 2024 and 2025," it said.
On rating rationale for TCS, Moody's Chaubal said the company's good corporate governance practices, reflected in its extremely strong balance sheet, large liquidity and net cash position, are a key credit strength supporting its `Baa1' rating.
Meanwhile, improving employee utilisation from hiring in prior years and declining attrition in the backdrop of global uncertainties will likely arrest any further margin pressure, with its EBITA margin remaining around 25 per cent over financial years 2024 and 2025.
