IT BIGGIES - WHO LEADS THE PACK?

By Research Desk
about 9 years ago

By Ruma Dubey

A quick comparison of the performance of the three big wigs of IT in India shows that once again, TCS scores the highest. In terms of revenue – both INR and US$, it is mush ahead of its peers. Even in terms of profitability, TCS comes tops but this time around, Operating margins of Infosys have become better, in terms of improvement. Wipro’s performance, compared to these two, looks pretty muted but the attrition rate shows that as things continue to churn in the top management of Infosys, it has one of the highest attrition rate amongst the three.

The geographical aspect shows the pain which the sector went through in FY15. For all these companies North America is the big market and through the year and apart from TCS which showed a degrowth, rest two did better. Current fiscal I expected to be a better market in North America. And Europe; while we have been talking about contraction of growth and fall in demand, that did happen with all three. Except for Wipro, both TCS and Infosys showed a degrowth in India.

HCL Tech ends its year on 30th June, which is why it has been considered here for a full year performance appraisal.

In terms of clients addition, Wipro did much better but TCS added just 5 new clients and Infosys actually saw a fall., during the Q4FY14, added no new clients but overall tally of TCS with 1700 clients was pretty good. But what is pertinent to note here is that it is not really hunting for new clients but is farming clients – meaning more clients from $50 million are migrating to $100 million. TCS now seems to be back to ‘quantity’ of clients.

In terms of guidance, Infosys said it expects revenue growth in the range of 10-12% for FY16 in constant currency terms, which is lower than Nasscom’s estimate for the industry at 12-14%. The company is targeting revenues of USD 20 billion by 2020 and its average revenue per employee is expected at USD 80,000 by 2020. Clearly, it’s a cautious outlook and there is nothing given for Q1FY16.

On the other hand, TCS, which does not give estimations said that it hopes to exceed NASSCOM’s revenue growth estimate of 12-14% for current FY16 fiscal. So definitely, it is more optimistic than Infosys. Wipro too gives a guidance and for Q1FY16, expects IT services revenue in the range of $1765 – 1793 million. This guidance is based on the following exchange rates : GBP/USD at 1.49, Euro/USD at 1.07, AUD/USD at 0.77, USD/INR at 62.10 and USD/CAD at 1.27.This is a tepid guidance and the market gave it the thumbs down.

A quick look at HCL’s number. HCL Tech, for its third quarter ended had a dismal performance. In fact , after it posted its best show in 16 years in December quarter, the company posted a 12% (QoQ) drop in consolidated net profit at Rs.1683 crore, much below what most analysts and brokerage houses had expected. Dollar revenue was flat and rupee revenue fell marginally by 0.2% to Rs.9267 crore. EBIT came in 10.5% lower at Rs.1977 crore. EBITDA margin was down at 21.3%, a slip of 250 bps.

For all these companies, North America is a big market and it is hoped that things will bounce back to a better performance in Q2 after the dismal GDP fall in Q1. At least that is what the Fed chief Yellen is also hopeful about!

So then, which is better amongst the biggies? Purely in terms of fundamentals, TCS emerges on the top and HCL shows much potential going ahead. In terms of pure stock market logistics, TCS has gone up substantially and trades at a higher PE to Infosys. This makes calling out aggressive prices on the counter extremely difficult. On the other hand, Infosys has been battered down a lot and things might look up in H2FY15, once the management churn has settled.

 

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