How were Infosys’ results? And why are they better than TCS’?  

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On Wednesday, India’s second-largest software service provider, Infosys, declared its quarterly results. It reported a 20.5 percent year-on-year (YoY) increase in the net profit for the quarter ending in September 2020. The company had witnessed a profit of ₹4,019 crore profit during the same last year. The company has reported a jump of 8.6% year-on-year in Consolidated revenue from operations (RFO) totaling to Rs. ₹24,570 crores in the second quarter of Financial Year 2021. At the same time, it has seen a growth of 26.8% on a year-on-year basis in operating profit which reportedly stood at Rs. 6,228 crores.

Earlier Infosys had predicted its growth merely at 0-2% in constant currency for the current financial year, which it has now revised to 2-3%. The full-year operating margin has also been revised from 21-23% set earlier to 23-24% now.

Salil Parekh, Chief Executive Officer and Managing Director of Infosys said that the company’s performance in the second quarter is a clear representation of its potential to assist its customers in the path to their digital transformation. He also said that the company has successfully and conveniently combined its digital and cloud capabilities with the dedicated client satisfaction principles, which has helped it achieve the mesmerizing and differentiated results in the market.

The implied sequential growth in the third and fourth quarters of the company is between 0.3% (lower end) and 1.5% (higher end). This hints at the company still being conservative and protective about its growth in the coming quarters. Analysts also estimate that it will once again revise its guidance upward while declaring the results for the quarter ending in December (just like it did this time). Basically, we can say that the company is playing it down.

The company is extremely proud to announce a 2.2% year on year overall growth in revenue. Along with that, the firm has observed 25.4% growth from digital services, which accounts for 47.3% of revenues. While announcing the results, the CEO also presented his gratitude to all the loyal customers who have continued to trust the firm with its services.

On the same day when the results were announced, the company declared an interim dividend of Rs. 12 per equity share which will be recorded on October 26, 2020, and paid on November 11, 2020.

The company’s Chief Financial Officer, Nilanjan Roy, also commented on the second-quarter results by stating that the firm has put relentless efforts into cost optimization and has also worked incessantly on strengthening operational efficiencies. All these efforts turned out in the favor of the company as certain cost deferrals led to 270 bps subsequently causing an improvement in operating margin to 25.4% as well as a 300 bps improvement in H1 margins.

Infosys gave a classic example of its resilience, grit, and strength by the amazing quarter 2 performance with a healthy and powerful increase in quantum of operating profits. It also cracked the highest ever deal TCV at $3.15 billion.

The company has also provided 100 percent variable pay along with some special incentives to recognize the efforts of its employees in the aforementioned quarter. Moreover, the cherry on the cake is the salary increase and promotions announced by the company across all levels which will be effective from January 1, 2021. Another metric of the company’s stellar performance is the reduction of Voluntary attrition (annualized – IT services) to 7.8% in the September quarter. The same was 11.7% in the June quarter and 18.3% in the year-ago period.

Infosys vs. Tata Consultancy Services (TCS)

Infosys with its magnificent results has left behind one of its biggest competitors in the market-Tata Consultancy Services Ltd. It has been surpassing Tata Consultancy on the basis of growth metrics for a while now and since the novel coronavirus hit the Indian ground the extent of outperformance has further increased.

In numeric terms, results of Infosys has continuously outperformed TCS’ results in the past three quarters.

  1. Infosys’s dollar revenues have jumped up by 2.1% as against a fall of 2.9% in TCS’ revenues.
  2. Infosys has seen a sharp rise in profit margins with its operating profits rising 18.1% during and after the pandemic as against a rise of only 1% in TCS’s case.
  3. Infosys shares are among the top performers among the IT stocks listed on the stock exchanged. In comparison to its pre-covid high, Infosys’ stock has risen by 42% in comparison to TCS’ shares which are up only 25% despite the prop of a large buyback at a handsome premium.

Analysts at Kotak Institutional Equities say that the coronavirus pandemic has facilitated the acceleration of usage of Information Technology and Infosys has always played the acceleration and transformation game very well.

It is not like Tata Consultancy Services Limited has not benefitted from this IT acceleration. It has, especially in the field of cloud and digital services, but it’ is just that the momentum is heavy on the side of the former.

Infosys’ dealing strategies have kept its boat afloat during these hard times. It has recently cracked an extremely profitable deal with Vanguard, which is also the biggest deal ever signed by the company. Operating margins are expected to reach 22-23% in the current financial year in comparison to the margin of 21.3% margin in the previous financial year. The fact that these heavy and magnum deals have not negatively affected the company’s margins is heartening and appreciable.

TCS has faced high pressure from its suppliers and its clients in Europe and other areas that have seen a plunge in overall growth numbers. On the other end, Infosys has a relatively concentrated portfolio which has helped in its recent numbers. However, several analysts are of the view that the TCS has better prospects in the long term because of its well-rounded portfolio of services.

 

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