TCS balm after Infy pain

Infosys cuts guidance to 5% TCS expects to beat Nasscom?s 11-14% growth target

The first-quarter results of Indian IT services bellwethers — TCS and Infosys — clearly indicate the gap between the two companies is widening. While Tata Consultancy Services (TCS) has grown its business at a steady clip in a difficult environment, by reporting growth across sectors and geographies, the Bangalore-based Infosys is seen to be struggling due to client-specific issues resulting in ramp-downs and disappointing numbers. While Infosys reduced its guidance, the TCS management said it would be able to beat Nasscom’s industry growth target of 11-14 per cent for the year provided cross-currency fluctuations were not too volatile.

The results clearly showed TCS was taking over from Infosys as the industry bellwether, said Partha Iyengar, vice-president and country manager-research, Gartner India.

The Infosys disappointment (the stock slumped 8.2 per cent to Rs 2,265) had a ripple effect on the markets, with the BSE IT Index falling five per cent and ending as the biggest loser among all sector indices. The TCS stock dropped 1.8 per cent to Rs 1,236. Its results were declared after market hours.

STREET THUMBS-DOWN BSE price (Rs)
	12-Jul	% chg*
Infosys	2,265.25	-8.15
TCS	1,236.09	-1.80
Wipro	359.30	-3.98
HCL Tech	481.50	-2.57
Tech Mahindra	709.90	-1.07
BSE IT Index	5,384.39	-5.11
*Over previous close      BS Research Bureau

N Chandrasekaran, MD and CEO, TCS, said, "This was a spectacular quarter for us. As of now, there is no cause of concern.”

This confidence is showing in the numbers, too. TCS reported a strong volume growth of 5.3 per cent for the first quarter ended June 30. Revenue was up 37.7 per cent year-on-year at Rs 14,869 crore and 12.1 per cent sequentially. Operating margins of 27.5 per cent were a big positive for the company even after it gave an average wage hike of eight per cent in India and witnessed a pricing decline of one per cent.

Infosys, on the other hand, reduced its FY13 guidance and said it would have a growth rate of five per cent from the earlier 8-10 per cent. “We are seeing sporadic pricing renegotiation and some demands for discounts. We lost $13 million because of the currency and took a one-time write-off of accrued revenue on a large transformational programme,” said S D Shibulal, CEO and MD, Infosys. The company saw volume growth of 2.7 per cent.

Infosys’ net profit went up 32.9 per cent y-o-y at Rs 2,289 crore, primarily aided by the depreciating rupee. Revenues went up 28.5 per cent y-o-y at Rs 9,616 crore. However, on a sequential basis, net profit declined 1.2 per cent and revenues went up 8.6 per cent.

HOW THE NUMBERS STACK UP
TCS
(Rs  crore)	Q1 FY13	Q4 FY12	% change sequential	Q1 FY 12	% change y-o-y
Revenue	14,869	13,259	12.1	10,797	37.7
Net profit	3,318	2,895	14.6	2,415	37.4
Ebit	4,077	3,681	10.8	2,824	44.0
Infosys
Revenue	9,616	8,852	8.6	7,485	28.5
Net profit	2,289	2,316	-1.2	1,722	32.9
Ebit	2,693	2,647	1.7	1,952	38.0
Data compiled by BS Research Bureau

While Infosys reported a pricing decline of 3.5 per cent, TCS said pricing was down one per cent. In terms of client addition, TCS was behind Infosys, which added 51 clients for the quarter against TCS’ 29. TCS’ utilisation rates were much better than those of Infosys, which dropped a few points to 71.6 per cent (excluding trainees). In what has been dubbed a “challenging environment”, the market it seems has found a safe haven in TCS.