TCS, HCL deliver broad-based growth

TCS and HCL Technologies continued their consistent performance to beat market expectations and outpaced Infosys comprehensively by delivering higher growth rates across key factors.

These numbers also suggest Infosys may be facing a challenge that is company specific as HCL and TCS still seem to be sailing smoothly by tapping into client spends aggressively.

Both TCS and HCL may be expected to equal if not surpass industry body Nasscom’s projected growth rate of 12-14 per cent for FY14.

Higher revenue growth, expansion across most verticals, improvements in utilisation rates and continued traction in its high-margin enterprise applications offerings were the key positives for TCS and HCL.

TCS was ahead of the others by reporting a 4.4 per cent increase in volumes (person months billed), while Infosys managed a 1.8 per cent rise on this front.

HCL (2.4 per cent) and TCS (2.2 per cent) reported sequential revenue growth that was much ahead of Infosys’ 0.3 per cent. In dollar terms too, these companies delivered well. On the profit growth front too, these two players delivered growth ahead of Infosys.

higher revenue

HCL and TCS reported utilisation of 82-84 per cent that was nearly 10 percentage points higher than what Infosys managed, clearly indicating that these two companies have significantly higher revenue visibility and traction with clients.

Manufacturing grew at a pace faster than their respective companies’ revenue growth rate for HCL and Infosys. BFSI too grew for all three players, with TCS reporting the strongest pace at 3.4 per cent. HCL also delivered a 3 per cent increase in its high-margin enterprise application offering and a robust 8.6 per cent expansion in its key strength – Infrastructure services. These points suggest that it has been able to tap into discretionary spends as well.

HCL had balanced growth across North America and Europe, while for TCS both geographies grew at a pace slower than the overall company’s revenue growth rate.

One point of concern though has been the lack of large-client ($100 million plus category) addition for all the three companies. Of course, this is generally a seasonally weak quarter for IT services companies and it may well be that clients could be slowing down on awarding large deals, though projects still continue to flow through.

Clearly, the likes of TCS, Cognizant and HCL seem to be on a different expansion trajectory compared to Infosys and Wipro that are still grappling with anaemic growth rates.

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