Info-tech

Key verticals, digital business deliver the goods for Infosys

K Venkatasubramanian, BL Research Bureau | Updated on October 16, 2018 Published on October 16, 2018

Infosys CFO MD Ranganath (right), and CEO and MD Salil Parekh, at a press meet to announce the company’s Q2 results

But operating margin, attrition disappoint

Infosys managed to match TCS in revenue growth and also in terms of recording significant traction in key verticals such as financial services and retail in the seasonally strong second quarter of the current fiscal.

But in several important parameters such as operating margin, attrition, and addition of large-sized clients, Infosys has fallen behind TCS. Looked at in isolation, however, the quarter’s performance may be deemed satisfactory for Infosys, coming as it does after a reasonable June period.

In the September quarter, Infosys’ revenues increased by 3.2 per cent sequentially in dollar terms (4.2 per cent in constant currency), while net profits rose by 8.8 per cent. TCS’ revenue growth too was 3.2 per cent.

The operating margin, despite significant depreciation of the rupee against the dollar, remained stable at 23.7 per cent. TCS, on the other hand, recorded a nearly 150 basis improvement and reported operating margins of 26.5 per cent.

Key verticals deliver

For Infosys, revenues from large segments such as financial services, retail and manufacturing grew by 3.7-4.9 per cent sequentially in the September period; TCS too recorded broad-based growth in many verticals.

Revenues from digital offerings grew by a healthy 12.7 per cent during the quarter for Infosys, and now account for 31 per cent of the overall pie. TCS’ digital business grew by a stronger 16.5 per cent. In terms of large-sized client additions, Infosys has lagged TCS significantly. Infosys witnessed a decline of one client in the $100 million bucket, while TCS had four additions in the category. The number of $10 million clients increased by 10 for TCS, while for Infosys the count rose by five. Attrition, at 22.2 per cent, continues to be a concern for Infosys, versus just 10.9 per cent for TCS.

On the revival path

From an IT industry standpoint, the healthy dollar revenue growth recorded by the top two players indicates that the software services space is set on the path of a broadbased revival.

Infosys has reiterated its guidance of 6-8 per cent revenue growth for FY19 and may finish closer to the upper end of the band, while TCS is likely to record double-digit growth.

Thus, the premium valuation multiples accorded to TCS (26 times trailing earnings) vis-à-vis Infosys (19 times) is not likely to go away any time soon.

Published on October 16, 2018
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