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K Venkatasubramanian TCS has yet again outpaced Infosys across parameters, with the March quarter results widening the gulf between the two IT giants.
Of course, Infosys is just finding its feet again with a new CEO and is expected to stabilise soon. But, if the trends in the growth trajectory of the two blue chip companies sustain, TCS will clearly continue to command a large valuation premium over Infosys.
In a seasonally weak quarter, TCS beat market expectations and delivered much better revenue and profit growth figures. Margins and metrics such as attrition too were better for TCS.
TCS delivered a 3.9 per cent sequential increase in revenues for the fourth quarter of FY18, while Infosys managed just 1.8 per cent.
TCS witnessed a 2 per cent increase in volumes (person months billed), indicating client traction even in a traditionally weak quarter for the industry. Infosys managed a 1.1 per cent increase in volumes.
TCS added one client in the $100-million category and three in the $50-million bucket during the quarter.
Leading the pack
The Tata Group firm reported an operating margin of 25.4 per cent in the March quarter, which was a percentage point more than what Infosys managed. Though the difference does not seem large, it does become significant when considering the fact that TCS has a 75 per cent larger revenue base.
Attrition too was under control for TCS, at 11 per cent, compared to Infosys’ 19.5 per cent.
In terms of digital offerings though, Infosys (25.5 per cent of revenues) has done better than TCS (21.2 per cent).
TCS does not give guidance, but its CEO has said that the company is ‘committed to double-digit growth’, while Infosys has guided for a 7-9 per cent increase in revenues this year.
Sign of revival
For the industry, it may be an early sign of revival, as the two leading lights may deliver at the upper end of trade body Nasscom’s projected growth rate of 7-9 per cent in FY19.
The TCS stock will command a premium, given its superior performance. The trailing 12 months price-earnings multiple for TCS is 24 times, while Infosys trades at 16 times, according to Bloomberg.
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