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Despite different commentaries, Infosys and TCS converge on target

While Infosys raised its revenue forecast to 10%, TCS said growth rates will hinge on Q2 numbers.

Jul 14, 2019, 11.24 PM IST
TCS has worked consistently to drive growth, while Infosys is catching up with its bigger rival, analysts said.
BENGALURU: India’s top two IT services companies, Tata Consultancy Services (TCS) and Infosys, could both post double-digit growth in the ongoing fiscal year, with the former moderating expectations after its first quarter results and the latter raising revenue guidance for the full year.

Infosys raised its revenue forecast to 8.5-10% in constant currency terms, while TCS said double-digit growth rates will hinge on its performance in the ongoing second quarter. Infosys has cut guidance on margin growth twice in the last two years to make room for investments that would help growth. TCS, on the other hand, has maintained its margin forecast, betting on its ability to win large platform deals to boost growth.

TCS’ platform strategy will likely result in more volatile growth, analysts said. “TCS’ and Infosys’ divergent commentary is a result of a number of issues,” said Peter Bendor-Samuel, CEO of IT consultancy Everest Research. “TCS’ deceleration is largely attributed to the large platform contracts which it signed last year. These create a lumpy dynamic, as the growth tails off after they have been ingested; it is quite possible that once this lumpy impact subsides, TCS will bounce back. This will clearly be a factor if they are able to add more large platform deals.”

TCS and Infosys are taking different steps to service delivery, Bendor-Samuel pointed out. “Other than the clear advantages Infosys is gaining from its localisation strategy, the other factors in its resurgence into a growth leader is a willingness to sacrifice some margin to drive growth and the stability that Salil (Parekh, its CEO) has brought, where Infosys is able to focus on the market now that they are no longer fighting themselves,” he said.

TCS has worked consistently to drive growth, while Infosys is catching up with its bigger rival, analysts said. “TCS has been on its own growth path for a longer period of time. Infosys, obviously, had a catch-up to do and Salil Parekh has done a phenomenal job in terms of driving appropriate investments in the business, whether in sales or reskilling,” said Kuldeep Koul, lead IT sector analyst with ICICI Securities.

Analysts also said TCS was a little early in making certain investments, whether it is in digital imperatives or go-to-market strategies. Despite posting slower growth, albeit on a larger revenue base, TCS outdid Infosys in one key aspect —attrition. TCS’ attrition has stayed under 12%, while Infosys’ has soared to 23% despite a move to reduce exits.

The higher attrition number will make it harder for the company to meet its already low margins target, analysts said. “It could be because of the higher number of people with traditional technology skills compared with TCS. They are also looking at more employees with skills in emerging technology,” said Vishwakumar Nandagopal, head of India Operations at ISG, a global technology research and advisory firm.
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