By Rajesh Pandathil & Kishor Kadam
Infosys today surprised the markets with a better-than-expected earnings numbers, sending it shares soaring about 6.48 percent in a lacklustre market.
The company's results have come just two days after its larger rival TCS announced a disappointing numbers.
Explaining the rationale behind the Infosys numbers, CEO Vishal Sikka who joined the company in June 2014 said, "Alongside grassroots innovation, we continue to see growing adoption of our Aikido services, bringing the power of intelligent systems, automation and software to amplify the skills and imaginations of our people. This combination helped us deliver encouraging results despite the traditional seasonality of the quarter and the additional headwinds, and will strengthen the execution of our strategy towards consistent profitable growth."
Aikido is an initiative launched by Sikka in August 2015 focussing on design thinking, platforms and knowledge-based IT as part of its efforts to return to industry-leading growth numbers.
Here's how both the companies stack up against each other:
As is evident from the graphic below, TCS revenue growth over the three quarters has been lagging that of Infosys. In all quarters barring one prior to that TCS, has lead the revenue growth. In fourth quarter of 2014-15, when TCS witnessed 1.1 percent decline in revenue, Infosys' revenue fell a deeper 2.8%.
“Infosys’ results beat our estimates for the third successive quarter with CC revenue growth of 1.1% (about 2%, excluding one-off of 2Q) and only a 60bps fall in EBIDTA margins. While the Total Contract Value (TCV) of orders signed was lower due to spill-over, the pipe-line remains strong at $3bn," Dipen Shah of Kotak Securities said in a statement.
In a post-earnings note on TCS, Amar Ambani of IIFL said "The company's constant currency dollar revenue growth was at a dejecting 0.5 percent on quarter and annual growth decelerated to 10 percent. "Growth trends were disparate across verticals, geographies and service lines," Amabni said.
The same trend is evident in even the bottomline figures. In the last three quarters, Infosys has been racing past TCS. In Q1 2015-16, TCS had witnessed a 48 percent jump in net profit because of the Rs 2,628 crore employee bonus outgo in the previous quarter. Accounting for that, TCS' net profit fell 3.3 percent, worse than Infosys's 2.2 percent decline. However, in the quarters prior to that the trend is mixed.
This is one metrics where Infosys is still lagging TCS. In the post earnings interaction, the Infosys management said the lower realisations has impacted its margins in the quarter under review. Its margins declined to 24.9 percent during the quarter from 25.5 percent a quarter ago. "We believe that, newer initiatives like Zero Distance, Design Thinking, Automation, etc will shore up the growth rates of Infosys and sustain margins over the longer term," Shah of Kotak Securities said. However, analysts are not very upbeat about TCS margins. "Margin decline was higher than expectation; company will have to manage operating levers adeptly to sustain margin in the longer term," Ambani of IIFL said in the note on TCS.
This has been a major headache for the tech companies. Seemingly to the measures taken by CEO Vishal Sikka Infosys has witnessed a decline in employee churn this quarter. TCS has also seen a decline but a marginal one at that.
Philip Capital in a note after TCS earnings said it sees the valuation gap between TCS and Infosys bridging over the next twelve months. This because TCS suffers from deceleration (large base, lack of inorganic drivers) and Infosys catches up to report industry‐leading growth by FY18. "We see the growth and consistency premium (which TCS has commanded over the last three years over Infosys) vanishing in the next three years", it said.