Info-tech

TCS fares better than Infosys during Q4

Rajalaksmi Nirmal BL Research Bureau | Updated on January 15, 2018

Rajesh Gopinathan, CEO, TCS, andNGanapathy Subramaniam, COO,announcing the firm’s results in Mumbai, on Tuesday. SHASHI ASHIWAL

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On the face of it, TCS that ended the 2016-17 fiscal with a 8.3 per cent growth in revenues (in constant currency terms), has delivered on par with Infosys. In the March quarter too, TCS reported a sequential revenue growth of 1 per cent, against Infosys’ flat revenues. But TCS has fared better than its peer across a few parameters during the March quarter.

One, while TCS’ large market, North America, reported a sequential decline in revenues of 1.8 per cent, the lacklustre performance was offset by a stronger performance in the UK and continental Europe. Revenues in these markets grew 4.1 per cent and 7.1 per cent, respectively. India business, which contributes about 6 per cent to the overall revenues saw growth of 9.3 per cent. For Infosys’ revenue from Europe declined by 1.6 per cent sequentially during the March quarter. The 1.2 per cent growth in revenues from the US too, has been nothing to write home about.

Two, during the March quarter, TCS added one new client in the $100-million-plus bucket and four clients in the $50-million-plus bucket. While Infosys added 71 new clients in the March quarter, additions in the $20/50-million-plus buckets were lower. TCS’ management has indicated that the deal pipeline continues to be strong with good number of orders in Agile and Cloud.

Three, while both companies reported a sequential decline in margin during the March quarter, TCS reported a lower 30 basis points fall against Infosys’ 50 basis points decline.

Also, in terms of verticals, while BFSI and retail reported sequential decline in revenue of 0.4 per cent and 3 per cent, respectively, for TCS, strong growth of 7.4 per cent and 5.2 per cent was witnessed in communication and Hi-Tech respectively. For Infosys, barring energy, all other verticals reported a lacklustre performance.

The share of digital revenues in total revenues has inched during the past year for TCS. Contribution from digital revenues stood at 17.9 per cent for the March 2017 quarter and 16.7 per cent for the full year 2016-17 (versus 13.8 per cent in the previous year). Despite the growing concerns on sector, the company’s new CEO, Rajesh Gopinathan, appeared confident about 2017-18. While he acknowledged the troubles in the retail vertical, he reassured that the BFSI business is doing well on the back of good deal momentum. On concerns over stricter H-1B visa norms, the company said it has already transitioned its business into a less visa-dependant model and is ready to take a fresh look at it if new norms come up. In 2016-17, the number of H-1B visa it has applied for, was the same as that of the previous year.

Outlook

Given that there is pressure on revenues for all IT services companies, a double-digit revenue growth in 2017-18 for TCS looks unlikely. Also, not much action can be expected on the inorganic front. Gopinathan said the company’s acquisition philosophy will continue to focus on capability and market access rather than looking for opportunities to grow revenue or add people.

Published on April 18, 2017

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