One drags the Sensex down, other gives hope
For the second quarter running, Infosys and TCS have painted a dramatically different picture of the global IT market, perhaps why the canny TCS decided to advance the date of its announcement of quarterly results to coincide with Infy?s. While Infosys couldn?t make much of even the sharp fall in the rupee and saw its Q1 FY13 net profits contract 1.2% on a sequential basis, TCS made the most of it and saw rupee profits rise 9.3%. In dollar terms, Infosys saw a 10.2% fall in sequential quarter profits, TCS saw a small 0.6% hike in Q1 FY13. In the previous quarter, while Infosys had said it was the toughest quarter in its 31-year history, TCS had talked of its being a normal year and that IT spends were growing. Not surprising then, that on Thursday, Infosys said it would no longer give quarterly guidance. What shook the market, however, was the near-halving of Infosys?s full-year guidance, from 8-10% earlier to ?at least 5%? now. TCS? results which beat the Street?s expectations, however, didn?t get a chance to move the markets as they came in after close of trading. In which case, the valuation gap between the two companies is likely to increase?before the results came out, TCS was trading at a forward PE of 19 as compared to Infosys?s 15, the higher margins of Infosys notwithstanding.
The reason is clear from some of the operating metrics of the two software biggies. While Infosys?s employee utilisation (excluding trainees) is down from 70.7 in the March quarter to 69.5% in the June quarter, TCS?s June numbers were 81.3%?Infosys reported a loss of a possible $15 million transformational order which could have changed things, but it?s not clear if this would have been enough. While Infosys saw a fall of 8.1% in sequential European volume growth (and 1.6% hike in north America), TCS managed to get a 9.7% rupee growth in continental Europe and a 25.4% hike in the UK (north American revenues rose 12% sequentially in rupee terms). Infosys?s BFSI vertical which is already stressed posted a flattish growth while TCS?s BFSI saw a 14% growth. In terms of operating margins, TCS?s 31.73 is lower than Infosys?s 36.6, but the net profit margin is not dramatically different at 24.52 for TCS versus Infosys?s 24.74?Infosys?s operating profit margins have fallen while TCS? have risen. The big game-changer, perhaps could be a big and successful acquisition for Infosys but for now that doesn?t seem on the horizon.
While Infosys has an apprehensive outlook versus TCS?s rosier one, it isn?t all black and white. There are many aspects that need to go well for the industry to regain lost glory. The inability of the industry to drive business in emerging markets like Latin America and Africa has been a major stumbling block. Customers are deferring decisions on spends and some like General Motors are even cutting technology outsourcing, and this has not helped any of the firms. If the trend continues, this year could end up as one of the worst ever years in Indian IT history in terms of revenue growth.
