Tata Consultancy Services beats Infosys in dollar revenue growth,margins

For the first-quarter ended June,TCS reported dollar revenue growth of 4.1% against Infosys’ 2.7% during the same period. In fact over the last five quarters,TCS has outperformed Infosys in dollar revenue growth sequentially except for the October-December period when Infosys (6.3%) posted higher revenue growth compared with TCS (3.3%) backed by revenue from its Lodestone acquisition.

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In the recently concluded June quarter,Infosys posted a 13.6% increase in dollar revenue to $1.9 billion against the year ago period,while rival TCS recorded a 16% jump year-on-year at $3.16 billion during the same period.

According to Sanjeev Hota,assistant vice-president,IT research,Sharekhan,with Infosys’ discretionary spend at more than 30%,excluding Lodestone,and TCS’ exposure to discretionary spend less than 25%,Infosys is under pressure to grow revenue sacrificing its operating margin. “With the company going through some internal struggles,it will be some time before they will even manage to catch up with TCS,” he added.

While TCS is expected to exceed Nasscom’s projection of 12-14% for FY14,Infosys is trying to meet the upper end of its forecast of 6-10%,which is lower than the industry outlook.

“We need to stop this unfair comparison of the current IT bellwether to the former industry bellwether. TCS is doing exceedingly well,consistently. The current gap on growth rates is going to be there for another 8-10 quarters,” Hota added.

Over the last couple of quarters,Infosys has been aggressively cutting down its prices to maintain volume growth that reduced its operating margins. It was in the Q2 of FY13 that TCS overtook Infosys in operating margins and since then it has consistently maintained this difference. For the first quarter ended June,2013 TCS reported operating margin of 26.9% against Infosys’ 23.6%.

Analysts say an improvement in terms of utilisation rate and deploying a lower employee wage base have led to better margin performance for TCS. The utilisation level of TCS reached a high of 82.7%,excluding trainees,in Q1,while Infosys had an utilisation rate of 75.9%.

“We have been able to push our utilisation rates further. The on-boarding of current year’s engineering graduate trainees will start from this quarter,” said Ajoy Mukherjee,executive vice-president and global head,HR,TCS.

“TCS’ superior execution would continue to support company’s premium valuations,” said Rumit Dugar ,IT and telecom analyst,Religare Institutional Research.