Infosys vs TCS: Gross hiring at both cos hit multi-quarter lows; Q1 result comparison in 7 charts

Infosys and Tata Consultancy Services have reported their earnings for April-June 2017 quarter at a time when the IT sector is facing heightened challenges amid rising fears of massive job losses in the sector.

Infosys's net profit fell 3.3 percent on quarter to Rs 3,483 crore and revenue eased 0.2 percent to Rs 17,078 crore, while TCS saw its net profit drop by 10 percent on quarter to Rs 5,945 crore and revenue by 0.2 percent to Rs 29,584 crore.

Despite the fall in earnings, Infosys still managed to meet the expectations, while TCS failed to do so.

Reuters

Reuters

However, managements of both the companies have exuded confidence about the growth prospects going further.

"I am encouraged by the uptick in revenue per employee for six quarters in a row, and the strong momentum in our new high growth services and software, as we accelerate our focus on innovation-led growth,” said Infosys CEO Vishal Sikka in a press release.

Rajesh Gopinathan, managing director and chief executive, TCS, has, meanwhile said, "We see a combination of strong demand for smaller projects coming out of newer areas like digital and some amount of very large transformational deals, especially in insurance. As that materialises, we should see a significant change in the environment."

Reacting to the results announcement, shares of TCS declined 1.8 percent to Rs 2,400 on the BSE with market capitalisation falling by Rs 8,700 crore. On the other hand, Infosys shares rose 0.55 percent to Rs 981.70 with market cap rising by Rs 1,240 crore.

Here are the 7 graphics that offer a simple comparison of the various financial metrics of both the companies:

Revenue growth (in rupee terms) of both the companies have been tepid over the last three-four quarters, with Infosys witnessing a steady decline over the last three quarters. Analysing the results, HDFC Securities said TCS witnessed a volume-led revenue growth in constant currency terms, even as core geography (North America) and core verticals continued to underperform the other segments.

While net profit of Infosys beat the estimates, that of TCS came in below expectation. The largest software exporter's figures were impacted due to a fall in EBIT margins as salary hikes and 80 bps impact following the rupee's appreciation against the dollar weighed. "Other income was down 6 percent qoq as expected to Rs 932 crore. Tax rate was up 1 percent to 24.2 percent, while minority interest was Rs 5 crore v/s Rs 14 crore qoq. Thus the PAT had declined 10 percent qoq to Rs 5,945 crore. Quite disappointing results on bottom line by TCS," Kotak Institutional Equities said in a note.

Employee attrition has been a major issue with the IT firms. However, with the sector witnessing headwinds owing to the protectionist policies in some of the key markets and the technological shift even as the churn may not be seen as a big problem. There have been reports of large-scale retrenchments in many IT majors, including Infosys and Tech Mahindra. Infosys's employee attrition during the quarter went back to the year-ago level of 21 percent, while TCS's attrition stood at 11.6 percent, higher than 10.5 percent recorded in the previous quarter but lower than 13.6 percent seen a year ago. According to brokerages, TCS has given huge wage hikes to the staff which impacted its bottom line. 

Gross staff addition numbers of both the companies reflect the problem the IT sector in general is witnessing on the jobs front. The addition has been at a 13-quarter low (as per Firstpost data) at both Infosys and TCS. While Infosys added 8,645 employees, TCS added 11,202 IT workers. TCS added 20,093 employees on gross basis in the quarter under review. According to HDFC Securities, TCS's gross additions are at four-year low, but expects to significantly increase trainee additions in the second quarter.

TCS has taken a hit on its operating margins due to currency volatility and higher salary hikes given to the staff. At 23.4 percent, TCS's margins are at a 13-quarter low (Firstpost data). HDFC Securities doesn't see the margin levels rising to 26-28 percent based on the outlook that hiring trends is expected to increase in overseas and lateral hires. In comparison, Infosys's margin is better placed at 24.1 percent. However, another brokerage firm Emkay Global notes that Infosys could see a fall in profitability due to expected wage hikes in July.


Published Date: Jul 14, 2017 01:28 pm | Updated Date: Jul 14, 2017 01:28 pm

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