TCS vs Infosys: While Tata's flagship firm's earnings disappoint Street, Infosys marginally ahead of estimates; Q2 analysis in 6 charts

Software giants Tata Consultancy Services (TCS) and Infosys have published their September quarter earnings last week. In the September quarter, while TCS’s earnings disappointed the Street, Infosys’ Q2 earnings were marginally ahead of estimates.

The country's largest software exporter on Thursday reported a tepid growth in net profit for the September quarter at Rs 8,042 crore and guided towards more challenges putting a big question mark over its ability to deliver double-digit growth.

"TCS reported muted Q2 FY20 numbers, with 0.6 percent quarter-on-quarter (QoQ) dollar revenue growth missing street's 2.1 percent estimate and operating margin falling QoQ to 24 percent in a seasonally strong quarter," according to a report by Edelweiss Research.

File photos of TCS CEO Rajesh Gopinathan and Infosys CEO Salil Parekh. Agencies

TCS posted a 1.1 percent decline QoQ and a 1.8 percent YoY rise in consolidated net profit at Rs 8,042 crore for the quarter ended 30 September, 2019.

The revenue of the Mumbai-based firm grew 2.1 percent QoQ and 5.8 percent YoY to Rs 38,977 crore in the July-September quarter.

"It is definitely lower than what we had thought at the start of the year," managing director and chief executive Rajesh Gopinathan told reporters departing from the company's typically cautious stance on commentary.

"We expected it to be a defining quarter, but it has come in wherever it is and we would require H2 to be better than H1 to get into double-digits. But we will have to wait and see how it unfolds," he said.

As a silver lining, he said, he isn't worried much about the demand environment as a whole as the deal pipeline is still strong, and hinted at "right-sizing" the cost base to improve on the margins.

Meanwhile, the country's second-largest IT firm Infosys reported 6.2 percent QoQ growth and 1.8 percent YoY decline in the consolidated net profit at Rs 4,037 crore for the September 2019 quarter.

Revenues of the Bengaluru-based firm grew 3.8 percent QoQ and 9.8 percent YoY to Rs 22,629 crore in the quarter under review.

Infosys raised the lower-end of its FY2019-20 revenue guidance and the revised forecast now stands at 9-10 percent growth in constant currency terms.

At the beginning of the fiscal, Infosys had said it expects revenue growth of 7.5-9.5 percent for FY2019-20. Subsequently, while announcing its first-quarter numbers, the company raised its revenue growth guidance for the fiscal to 8.5-10 percent.

"Our performance was robust on multiple dimensions – revenue growth, digital growth, operating margins, operational efficiencies, large deal signings and reduction in attrition," Infosys CEO and MD Salil Parekh said.

Here are six charts that help decode Infosys and TCS' performance:

On the rupee revenue front, both TCS and Infosys reported record numbers at least in 22 quarters. While TCS clocked a revenue of Rs 38,977 crore in the September quarter, that of Infosys was Rs 22,629 crore.

In the case of TCS, the revenue growth of 2.1 percent (QoQ) in the September quarter was the highest in the past four quarters, while Infosys' revenue growth of 3.8 percent (QoQ) was the highest in the past three quarters.

The Tata group's gem had Q1 net profit of Rs 8,042 crore, the lowest in four quarters. At Rs 4,037 crore, Infosys' net profit was the highest in the past two quarters.

TCS' net profit declined by 1.1 percent (QoQ) and was the lowest in the past nine quarters. Infosys recorded a rise of 6.2 percent (QoQ) in its net profit in the September quarter, the highest in the past two quarters.

TCS' operating margins dipped 20 bps to 24 percent sequentially, the lowest in the past nine quarters,  much below the aspirational target of 26-28 percent. It was impacted by the most because of lower revenue flows and also a higher amount of overheads like higher wage outflows. On the contrary, Infosys' operating profit margins rose 120 bps to 21.7 percent in the September quarter, the highest in at least three quarters. The company expects to maintain the FY20 operating margin range of 21-23 percent.

In the September quarter, TCS' employee attrition rate has risen to a six-quarter high at 11.6 percent, which the company attributed it to seasonal factors like implementation of wage hikes. Bangalore-based Infosys' attrition rate fell to 21.7 percent, which was the lowest in two quarters.

--With PTI inputs