In this blog, we will be doing a comparative analysis of 2 IT Giants- TCS and Infosys. Tata Consultancy Services (TCS) have announced its Q2FY22 results on 8th July 2021, while Infosys has released the result for the same quarter on 14th July 2021.
Which Company is best between this two, get an insight on the same with the help of this 5-Point Comparative Analysis.
1) Financials: Revenue, Profitability, Cash Flow Metrics:
i) Revenue Highlights:
The revenue of the IT Companies is generally assessed on 3 bases: Domestic Currency i.e. Indian Rupee (INR), Foreign Currency i.e., (United States Dollar), and Constant Currency.
- Infosys reported higher YoY growth.
- Also, while assessing the QoQ & YoY growth as well as CC Revenue Growth number, the performance of Infosys is better than TCS
a) INR Revenue:
- On an Indian Currency basis, the revenue of Tata Consultancy Services (TCS) has grown by 16.8% YoY and 3.2% QoQ to Rs. 46,867 Cr. in Q2FY22.
- While the same has grown by 20.5% YoY and 6.1% QoQ for Infosys to Rs. 29,602 Cr. in Q2FY22.
- Hence, on Indian Currency Terms, Infosys has outscored TCS on yearly basis as well as a quarterly basis.
b) USD Revenue:
- Here, the Revenue of TCS stood at $6,333 million up by 16.8% YoY and 2.9% QoQ.
- Whereas, the revenue of Infosys on a USD basis stood at $3,998 million up by 20.7% YoY and 5.7% QoQ.
- On a US Dollar basis, Infosys has again gained more revenue on a yearly as well as a quarterly basis
c) Constant Currency Basis:
- On a Constant Currency Basis, Infosys has performed much better than TCS as its growth stands at 19.4% YoY and 6.3% QoQ. The same is 15.5% YoY and 4% for TCS.
ii) Profitability Highlights:
- TCS has earned an Operating Profit of Rs. 12,000 Cr. in Q2FY22 and is up by 14.1% YoY and 3.5% QoQ.
- The Operating Profit of Infosys stood at Rs. 6,972 Cr. in Q2FY22 and has gone up by 12% YoY and 5.6% QoQ.
- In the case of Operating Profit, on yearly basis, TCS has performed well, while Infosys has played well on a sequential basis.
- The Operating Profit Margin of TCS is 25.6% for Q2FY22 down by 0.6% YoY and up by 0.1% QoQ. The same is 23.6% for Infosys which has also reported a similar trend like TCS and has noted the fall of 1.8% YoY and 0.1% QoQ.
- Supply-side shortages and increased employee churn have led to higher back-filling expenses
- Greater use of subcontractors across the industry
- The Total Net Profit of the TCS Stood at Rs. 9,624 Cr. for the quarter ended 30th September 2021 and is up by 14.1% YoY and 6.8% QoQ. Whereas the Net Profit of Infosys for the same period is Rs. 5,428 Cr. up by 11.7% YoY and 4.4% QoQ.
- In the context of Net Profit, TCS has presented good growth yearly and also quarterly.
- The Net Profit Margin of the company of TCS and Infosys for Q2FY22 stood at 20.5% and 18.3% respectively.
iii) Cash Flow Metrics:
- The Operating Cash Flow (OCF) of TCS is of Whooping Size of Rs. 9,945 Cr. as of 30th September 2021 against Rs. 5,606 Cr. of Infosys for the same period.
- In the case of Operating Cash Flow as a % of Net Profit, Infosys and TCS are on the same level. OCF as a % of net profit of Infosys is 103.27%, while the same is 103.33% for TCS.
- The Free Cash Flow (FCF) of TCS and Infosys for Q2FY22 is Rs. 9,229 Cr. and Rs. 5,272 Cr. respectively.
- The FCF as a % of Net Profit is 97.12% for Infosys while the same is 95.89% is for TCS, and hence Infosys is in a strong position here.
2) Revenue Mix:
- The Geographical revenue mix of the company has not changed much.
- The contribution of the US Business, Europe Business, and India Business in Q2FY22 stood at 51.9%, 32%, and 5.1% respectively against 51.6%, 31.8%, and 5% in Q2FY21
- It looks like the dependency on US Business for Infosys has increased as its contribution of the US business to the total revenue of the company has increased from 60.7% in Q2FY21 to 61.9% in Q2FY22.
- The contribution of the Europe Business and India Business in Q2FY22 stood at 24.8%, and 2.6% respectively against 24.8%, and 3% in Q2FY21.
The segment-wise revenue contribution of TCS and Infosys are as follows:
3) Demand Highlights:
- Infosys has added 1 new client worth more than US$ 100 million in Q2FY22 and has taken the total count to 35 in Q2FY22. Whereas TCS has added 6 new clients in this category and its total count stood at 54 as of the quarter ended 30th September 2021.
- In the case of US$ 50 million-plus clients, TCS has gained 14 new clients and now has 114 clients as of Q2FY22, whereas, Infosys has gained only 3 clients in this category and hence its total count is 62 in Q2FY22.
- For the category of US$ 10 million+ clients, Infosys has gained 6 clients in Q2FY22 and its total figure for this category reaches 270 while TCS has gained 355 clients and is now with 417 clients in Q1FY22.
- Likely, Infosys has gained 36 new clients in the category of US$ 1 million+ clients in Q2FY22 and is now having 841 Clients in this category. In the same criteria, TCS has gained 72 clients in Q2FY22 and is now having 1,138 Clients in this category.
- In the context of adding new clients, TCS has beaten Infosys.
- The Total Contract Value (TCV) of Deal Wins in Q2FY22 is $7.6 Billion and $2.15 billion for TCS and Infosys respectively.
- In FY21, the TCS of Deal Wins stood at $31.6 billion for TCS and $14.1 billion for Infosys.
- The Total Active Clients of TCS in Q2FY22 is more than 2,579 while it is 1,714 for Infosys.
ii) Client Parameters- Revenue Contribution:
TCS does not report the revenue contribution of the clients. For Infosys there are not any high dependency on the clients, here are the stats:
4) Employee Metrics:
- The Employee base of TCS is 5,28,748 as of 30th September 2021 while the same is 2,79,617 for Infosys.
- Net Addition of Employees in Q2FY22 of TCS is 19,690 employees while Infosys has added 11,664 Employees in the same quarter. Infosys has also said that it will hire 45,000 employees for the year FY22.
- Moving forward to Diversity wherein Women Employee % in Infosys is highest at 39.1% while it is 36.2% for TCS as of 30th September 2021.
- The attrition rate of the Last Twelve Months of both companies is 11.9% and 20.1% for TCS and Infosys respectively.
- The Gross Utilization % is 84.1% for Infosys and TCS does not release this data.
- Also, the Utilization % excluding Trainees is 89.2% for Infosys, and the same data for TCS is unavailable.
- The Current Market Price of TCS and Infosys as of November 17, 2021, is Rs. 3,523.9 and Rs. 1,788 respectively.
- The Current PE of TCS and Infosys are 35.95 and 36.05 respectively.
- The 5-Year PE Range of TCS is 25.1 while the same is 19.3 for Infosys.
- As of now, Infosys stock enjoys more premium valuation against TCS. Currently, Infosys stock is trading at a premium valuation of 86%, the same is 40%-45% for TCS.
Currently, all IT Stocks are trading at a Premium Valuation. It is crystal clear that both the companies have good cash flows and earnings visibility, but growth should stand upon the expectations.
Lower double-digit returns can be expected from all the IT stocks and hence one should be watchful before investing in any of these stocks.