Why IT stocks are going up?
Recently, both the IT giants, TCS and Infosys declared their quarterly results. Both the companies have delivered results that beat the estimates of analysts. In Q1FY21, management commentaries of these companies were a bit skeptical about continuing such stellar performance in future, however Q2FY21 results have turned out much better. In this blog, let us analyse and compare the performance of these two IT companies (TCS vs Infosys) based on seven parameters.
TCS vs Infosys
- TCS has registered greater QoQ growth in terms of revenue (both INR and USD) and Infosys has registered higher YoY growth in terms of revenue (both INR and USD)
- For operating profit from growth point of view, Infosys has performed better than TCS.
- Both the companies have performed quite well on operating margin front posting healthy margins ~25-26%.
- For this quarter, TCS has made some provisions where it might have to pay some fine regarding a claim. Excluding this provision, TCS reported a net profit of INR 7475 crore.
- TCS has posted better net profit growth on QoQ basis, while Infosys has posted better net profit growth on YoY basis.
Free Cashflow Q2FY21
- Here as well, from growth perspective, Infosys has posted better growth in Free cashflows as compared to TCS.
- Overall Infosys is quite aggressive at adding new clients in almost all the categories.
Revenue by Geography
- TCS has higher revenue contribution from European region as compared to Infosys, whereas Infosys has higher revenue contribution from North America.
Revenue by business segment
- Infosys has higher revenue contribution from Communication & Media , while TCS has higher revenue from Life Sciences and Healthcare.
- Revenue contribution from remaining segments for TCS and Infosys are almost similar.
- TCS has almost 2x the employees as compared to Infosys.
- However, Infosys workforce is more diversified and has lesser attrition rate as compared to TCS.
- TCS market capitalization is almost ~2.5x Infosys market capitalization. As seen from comparison with median PE and current PE, it is evident that all IT stocks are trading at premium valuations.
- Both the companies are open for inorganic growth in the form of acquisitions and mergers on account of healthy cash balances.
- From Sales growth perspective, TCS and Infosys have similar growth rates for 3 year and 5 year , whereas Infosys is better placed in terms of TTM sales growth.
- Except for TTM net profit growth, TCS has better growth rates as compared to Infosys, whereas Infosys has healthy TTM net profit growth.
- As on Sept’20, TCS has very high promoter holding of 72.1%, whereas Infosys has promoter holding of ~13%. There is a huge difference in the free float market capitalization of both the companies.
- Due to this, Infosys has greater weightage in indices like NIFTY 50 and SENSEX as compared to TCS.
- This is also one of the reasons for higher valuation of TCS as there is lesser free float, the demand of shares is greater than supply.