Here is a 5-point comparative analysis of TCS Vs. Infosys:
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.
- TCS reported higher YoY growth.
- However, while assessing the QoQ 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 18.5% YoY and 3.9% QoQ to Rs. 45,411 Cr. in Q1FY22.
- While the same has grown by 17.9% YoY and 4.7% QoQ for Infosys to Rs. 27,896 Cr. in Q1FY22.
- Hence, on Indian Currency Terms, TCS has outscored Infosys on yearly basis and has lacked by a small percentage quarterly.
b) USD Revenue:
- Here, the Revenue of TCS stood at $6154 million up by 21.6% YoY and 2.7% QoQ.
- Whereas, the revenue of Infosys on a USD basis stood at $3,782 million up by 21.2% YoY and 4.6% QoQ.
- On a US Dollar basis, TCS has again gained more revenue on yearly basis but lost to Infosys Quarter on Quarter.
c) Constant Currency Basis:
- On a Constant Currency Basis, Infosys has performed much better than TCS as its growth stands at 16.9% YoY and 4.8% QoQ. The same is 16.4% YoY and 2.4% for TCS.
ii) Profitability Highlights:
- TCS has earned an Operating Profit of Rs. 11,588 Cr. in Q1FY22 and is up by 17% YoY and 4.9% QoQ.
- The Operating Profit of Infosys stood at Rs. 6,603 Cr. in Q1FY22 and has gone up by 23% YoY and 2.5% QoQ.
- In the case of Operating Profit, on yearly basis, Infosys has performed well, while TCS has played well on a sequential basis.
- The Operating Profit Margin of TCS is 25.5% for Q1FY22 up by 1.9% YoY and down by 1.3% QoQ. The same is 23.7% for Infosys which has also reported a similar trend like TCS and has noted the rise of 1% YoY and fall of 0.8% QoQ.
- The Total Net Profit of the TCS Stood at Rs. 9,008 Cr. for the quarter ended 30th June 2021 and is up by 28.5% YoY and down by 2.6% QoQ. Whereas the Net Profit of Infosys for the same period is Rs. 5,195 Cr. up by 22.7% YoY and 2.3% QoQ.
- In the context of Net Profit, Infosys has impressed quarterly, while TCS has presented good growth in Net Profit yearly.
- The Net Profit Margin of the company of TCS and Infosys for Q1FY22 stood at 19.8% and 18.6% respectively.
iii) Cash Flow Metrics:
- The Operating Cash Flow (OCF) of TCS is of Whooping Size of Rs. 9,785 Cr. as of 30th June 2021 against Rs. 6,463 Cr. of Infosys for the same period.
- But in the case of Operating Cash Flow as a % of Net Profit, Infosys has better stats of 124.2% in Q1FY22 against 114.3% of TCS for the same period.
- The Free Cash Flow (FCF) of TCS and Infosys for Q1FY22 is Rs. 9,750 Cr. and Rs. 6,363 Cr. respectively.
- The FCF as a % of Net Profit is 122.3% for Infosys while the same is 108.2% is for TCS, and hence Infosys is in a strong position here.
2) Revenue Mix:
- In Q1FY22, it is appearing that TCS is reducing dependency on the US Business, as its contribution of the US business to the revenue of the company has decreased from 53.1% in Q1FY21 to 51% in Q1FY22.
- In the case of the European Business of TCS, it has noticed an expansion in the contribution of European business to the revenue of the company from 30.9% in Q1FY21 to 32.9% in Q1FY22.
- The India business contributes 4.6% of the total revenue of the company in Q1FY22 against 4.3% in Q1FY21.
- The Geographical revenue mix of the company has not changed much.
- The contribution of the US Business, Europe Business, and India Business in Q1FY22 stood at 61.7%, 24.2%, and 2.9% respectively against 61.5%, 24%, and 2.9% in Q1FY21 respectively.
The segment-wise revenue contribution of TCS and Infosys are as follows:
3) Demand Highlights:
- Infosys has added 2 new clients worth more than US$ 100 million in Q1FY22 and has taken the total count to 34 in Q1FY22. Whereas TCS has not added any new client in this category and its total count remains at 48.
- In the case of US$ 50 million-plus clients, TCS has lost one client and now has 100 clients as of Q1FY22, whereas, Infosys has neither gained nor lost any client in this category and hence its total count is stable at 59 in Q1FY22.
- For the category of US$ 10 million+ clients, Infosys has gained 12 clients in Q1FY22 and its total figure for this category reaches 264 while TCS has lost 5 clients and is now with 382 clients in Q1FY22.
- Likely, Infosys has gained 26 new clients in the category of US$ 1 million+ clients in Q1FY22 and is now having 805 Clients in this category. In the same criteria, TCS has lost 30 clients in Q1FY22 and is now having 1,066 Clients in this category.
- In the context of adding new clients, Infosys has performed exceptionally well as compared to TCS.
- The Total Contract Value (TCV) of Deal Wins in Q1FY22 is $8.1 Billion and $2.6 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 Q1FY22 is more than 2,500 while it is 1,659 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 5,09,058 as of 30th June 2021 while the same is 2,67,953 for Infosys.
- Net Addition of Employees in Q1FY22 of TCS is 20,409 employees while Infosys has added only 8,334 Employees in the same quarter.
- Moving forward to Diversity wherein Women Employee % in Infosys is highest at 38.8% while it is 36.2% for TCS as of 30th June 2021.
- The attrition rate of the Last Twelve Months of both companies is 8.6% and 13.9% for TCS and Infosys respectively.
- The Gross Utilization % of TCS is 82.3% for Infosys and TCS does not release this data.
- Also, the Utilization % excluding Trainees is 88.5% for Infosys, and the same data for TCS is unavailable.
- The Current Market Price of TCS and Infosys as of July 25, 2021, is Rs. 3,212 and Rs. 1,590 respectively.
- The Current PE of TCS and Infosys are 34.4 and 32.77 respectively.
- The Historical Average PE Range of TCS is between 23-23 while the same is 18-21 for Infosys.
- As of now, Infosys stock enjoys more premium valuation against TCS. Currently, Infosys stock is trading at a premium valuation of 70%-75%, 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.