Who scores better - Infy or TCS or Mindtree?

By Geetanjali Kedia

With Q1FY16 result season in full swing, much like the monsoon, 2 biggies TCS and Infy along with Mindtree have announced earnings for first quarter ended 30^th June 2015. While TCS results were out on 9^th July itself, Mindtree announced earnings a week on 16^th July and today, 21^st July, was the turn of Infosys.  Another 2 from the IT Big 4, Wipro and Hexaware, are scheduled to announce earnings on 23^rd July and on 3^rd August respectively.

Below is an extract of financials of the 3 companies, having declared results so far:

At 4.5%, while the USD QoQ revenue growth was highest for Infosys, net profits margins of TCS was the strongest at 22.1%, despite lower volume growth of 4.8% vis-a-vis 5.4% quarterly volume growth of Infosys. TCS’ QoQ net profit growth was also the highest, partly because Q4FY15 was soft. Geographically, Americas have been strong for all the 3, with Europe remaining a laggard for Infy and Mindtree, TCS, on the contrary, was quite resilient to the EU shockwaves. Among the industry domains, retail and distribution along with life sciences, healthcare and telecom were the winners for both TCS and Infy, while it was BFSI all the way for Mindtree.

Given its highest utilisation in the industry and the sheer employee count, nearly 80% higher than nearest rival Infosys, TCS continues to be the market leader and much fancied so. It continues to commands premium valuations, of nearly 10% vis-a-vis Infy, even after the 11% upswing in Infy share price witnessed on Tuesday, post the positive results surprise. While all the IT firms are strengthening their focus on ‘digital’ either through acquisitions or through internal resource training, market continues to reward TCS for its proven execution track record, consistency and leadership over the years.

To cut the long story short, so far, Q1FY16 has been better-than-expected, especially in relation to fear of under-performance created by the media and a section of the analysts over the June quarter results for the IT sector. Industry body Nasscom has estimated FY15-16 IT export growth at 12-14%, unchanged from last year. Infosys, on the other hand, has retained its FY16 guidance at 10%-12% in constant currency terms and upped USD guidance to 7.2%-9.2%, after its better-than-expected Q1FY16 growth of 4.5%. Media and other market experts who were maintaining a cautious stand have, once again, been proved wrong.

While TCS remains a leader, and a more-or-less consistent one, Infosys is fast catching-up to its lost glory under Vishal Sikka’s innovative leadership style. Mid-cap IT, with its niche focus and better adaptability to new technologies, be it digital or cloud or big data, will continue to give the bigwigs a run for their money. Thus, on the valuation pick, at a PE multiple (net of cash) of 17.8 times, Infosys is trading at a 10% discount to TCS, while Mindtree is at an almost 10% discount to Infy. Both the biggies remain a good buy, at the current levels, given the positive outlook going forward.