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The growth of Tata Consultancy Services is seen lagging that of rival Infosys Ltd this financial year and the next, though both companies will likely grow at a moderate rate next financial year.
Moody’s Investor Services, which affirmed the issuer ratings of the two software services companies at Baa1, in a note on Wednesday, said that TCS revenue is seen rising 8 per cent in 2022-23 and at a lower 5 per cent in the next two financial years. Revenues of Infosys has been forecast to rise 13 per cent in the current fiscal year and at a lower rate of 8 per cent in 2023-24.
The global rating agency said that revenue growth prospects for IT companies are likely to slow down in the medium term with corporates remaining “cautious with their discretionary IT budget allocations” due to “global uncertainties and fears of a looming recession.”
TCS Outlook
The operating profit margin of TCS is expected to be at 25 per cent in the next two financial years. “While Moody’s expects TCS to return 80-100 per cent of its free cash flow (cash flow from operations - capital spending) through shareholder distributions, such high returns can be accommodated within the credit profile of the company given its largely debt-free balance sheet and excellent liquidity position,” the rating agency said.
With cash, deposits and current investments worth $8 billion, TCS had a strong liquidity position, and the prospect of sustained, recurrent cash flows will be more than adequate to cover the company’s modest capex and shareholders returns over the next 12-18 months.
Infosys outlook
Moody’s has pegged Infosys’ operating margin to remain at the 24 percent level over the next two years.
The company is expected to return up to 85 per cent of its free cash flows through shareholders distributions. Its ample liquidity at $3.9 billion and steady cashflows from operations will cover its outflows.
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