For long, Infosys has taken pride of being IT bellwether in India by delivering industry’s best operating margins. But, the scenario has changed now. With the latest numbers, the gap between the profit margins of TCS and Infosys seems to have shrunk to a noticeable extent.
Tata Consultancy Services confirmed its status as the IT bellwether in India, while Infosys, which is known as IT bellwether for long, became entrenched as the plain number two.
Let’s check out what helped TCS to become IT bellwether of Indian It industry.
1 Outlook: Infosys is significantly known as industry’s bellwether because of its ability to achieve and sometimes exceed its revenue forecasts. This attitude always keeps analysts and investors happy. However, checking past few quarters’ report, it is clear that Infosys has been unable to keep pace with its forecast and is repeatedly revising its revenue forecast.
Infosys has cut its fiscal 13 sales outlook to 5 percent to $7.34 billion, down from its April estimate of 8-10 per cent growth. On the other hand, TCS recently announced that it is expecting to beat the industry export revenue growth forecast of 11-14 percent for this fiscal year.
2 Revenue Earnings: On one side, Infosys's June quarter net profit rose 33 percent year-on-year as expected, TCS on the other hand, exceeded its forecasts by posting 38 percent annual jump in its quarter profit. As far as Infosys's billing rates are concerned, it was down by 3.7 percent from the previous quarter. TCS recorded 1 percent billing rates.
3. Ebitda: Ebitda (Earnings before interest, tax, depreciation and amortisation), which is a key measure of profitability, has contracted 50 basis points to 29 per cent from 29.5 per cent in the previous quarter for TCS, while for Infosys, it declined 190 basis points sequentially to 28 per cent against estimates of 30 percent.
4. Management commentary: Infosys continued to face weak economic environment, falling client confidence, and a drastic decline in discretionary spend. In contrast, it is expected, TCS’s future growth and demand will remain stable even as the unprecedented currency volatility continues to remain a challenge.
5. Hiring & Attrition: TCS has added 13,831 employees (gross) in the first quarter of the current fiscal, and a net of 4,962 for the period. On the other hand, gross addition for the quarter was only 9,236, while net was a slim 1,157, less than half of 2,740 in the same period last fiscal.
6. Slow Hiring: Recently, a report grabbed limelight that IT bellwether of India Infosys has delayed joining of some 28,000 engineers hired from different campuses to as late as July 2013. Besides this, Infosys has also recently announced that it has decided to give no salary increase to its employees this year.
7. New Clients: TCS: TCS has recently added 29 new clients in the quarter ending June. It added that it has signed at least one $100 million-plus contract with a North American retailer. Infosys on the other hand has added 51 new clients in the June quarter. However, it has reported pricing decline of 3.7 per cent.
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