State of CAD depends on how IT majors fare
Tata Consultancy Services’ results for the three months to December 2012 confirm that the management’s confidence in itself these past few quarters hasn’t been misplaced. While Infosys has struggled for more than a year now, in a difficult environment, missing its own estimates regularly, TCS has been more sure of its ability to cope. While it did spectacularly well in the September 2012 quarter—causing experts to wonder whether at all the market was as tough as was being made out to be—the company’s performance in a seasonally weak quarter too has been has been commendable; operating profit margins expanded by about 50 basis points to 27.3%, beating Infosys’ 25.7%, and had the currency behaved better, net margins too would have been more robust. The improved profitability suggests the management has a tight grip on costs and is becoming more efficient—utilisation excluding trainees hit 81.7%—even as it grows its top line in existing and new geographies.
The company may have won 31 new clients this time around to Infosys’ 53, but what’s important is that it perceives the deal pipeline to be strong—even in geographies like Europe where it de-grew during the quarter, TCS believes it has better clarity on deal flows and will bounce back. The tech major’s confidence in being able to exploit the demand for IT services worldwide is reflected in its hiring—having almost hit the target of 50,000 for 2012-13, the company hopes to pick up 25,000 people from the campuses alone next year. The valuation gap between Infosys and TCS has narrowed after the former delivered a good set of numbers last week, but TCS should continue to command a premium for a few more quarters predominantly because its performance has been steady and also because Infosys needs to prove its turnaround is not a flash in the pan.