TCS Q3 results: Will TCS be able to widen revenue gap with key rival Cognizant?

Observers feel that given Cognizant's fast growth rate than industry growth average, it may be able to close the gap in the next few quarters

As Tata Consultancy Services (TCS), India's largest IT services company announces its financial numbers for the December quarter of FY16, among others, industry analysts would also watch out if its revenue gap with Cognizant is narrowing further or widening.

Nasdaq-listed Cognizant is steadily closing its revenue gap with the Mumbai-headquartered company. At the end of September quarter of 2015, the TCS’s quarterly revenue at $4,160 million was $973 million higher than that of Cognizant's. In September-December 2014, the revenue gap between TCS and Cognizant stood at $1.19 billion.

Given that Cognizant, every year, is growing much faster than the industry growth average as well as its large Indian peers including TCS, industry observers believe that in next few quarters, it may close the gap further. 

For CY2015, Cognizant has given a revenue growth guidance of 21% whereas Indian information technology (IT) industry body Nasscom expects the IT exports revenue to grow between 12-14%.

The other point to watch out for is TCS’s performance in North America, where Cognizant has positioned itself as a formidable player being a US-headquartered company. 

TCS has been constantly struggling to beat Cognizant in its home market ever since it lost to the US-based firm in terms of North America revenue in September quarter of 2013.

Industry analysts however believe that Cognizant overtaking TCS in terms of overall revenues perhaps is not possible in the near term though it is a possibility in the longer term. “Cognizant is certainly well placed against TCS is the US market. Its growth is much better than TCS, but I do not think it can overtake TCS in near-term in terms of total revenue. In long-term, this might be possible,” said an analyst with a Mumbai-based brokerage firm.

In the July-September quarter of 2015, TCS reported a revenue of $2,192 million from North America whereas Cognizant's revenues from the region stood at a notch higher at $2,511 million.

It would be interesting to watch how much TCS earned from North America in the September-December quarter and its guidance for the rest of the current fiscal which will set the tone of the competition between the two majors. 

	TCS		Cognizant
Period	Total revenue	North American revenue	Total revenue	North American revenue
July-Sept 2015	$4,160	$2,192	$3,187	$2,511
Apr-June 2015	$4,036	$2,131	$3,085	$2,424
Jan-March 2015	$3,900	$2,044	$2,911	$2,292
Sept-Dec 2014	$3,931	$2,040	$2,742	$2,134
* All figures are in $ million
# Source: Companies' websites