In this blog, we will be doing a comparative analysis of 3 IT Giants- TCS, Infosys, and Wipro. Tata Consultancy Services (TCS), Infosys, and Wipro have announced their Q3FY22 results on the same day i.e., 12th January 2022. Which Company posted the best Q3 results among these three, 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.
- Wipro 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 16.4% YoY and 4.3% QoQ to Rs. 48,885 Cr. in Q3FY22.
- While the same has grown by 22.9% YoY and 7.7% QoQ for Infosys to Rs. 31,867 Cr. in Q3FY22.
- Wipro registered a revenue growth of 29.6% YoY, which is the highest among others and 3.3% quarterly growth. The Revenue of the company stood at Rs. 20,313 Cr. in Q3FY22.
- Hence, on Indian Currency Terms, Wipro has outscored TCS & Infosys on yearly basis, while Infosys has outscored TCS and Wipro on a quarterly basis.
b) USD Revenue:
- Here, the Revenue of TCS stood at $6,524 million up by 14.4% YoY and 3% QoQ.
- Whereas, the revenue of Infosys on a USD basis stood at $4,250 million up by 20.9% YoY and 6.3% QoQ.
- Wipro reported revenue of $2,640 million, which has grown by 27.5% YoY and 2.3% QoQ.
- On a US Dollar basis, Wipro has again gained more revenue on a yearly basis while Infosys has performed better on a quarterly basis
c) Constant Currency Basis:
- On a Constant Currency Basis, Wipro outscored TCS and Infosys by registering revenue growth of 28.5% YoY. The same stands at 21.5% and 15.4% for Infosys and TCS respectively.
- In terms of sequential growth of revenue, Infosys has performed better among all by registering 7% growth, which is 3% for Wipro. TCS has not reported a quarterly figure.
- Infosys has given revenue guidance for FY22 revised upwards to 19.5%-20.0%, powered by sequential growth of 7.0% in Q3.
ii) Profitability Highlights:
- TCS has earned an operating profit of Rs. 12,237 Cr. in Q3FY22 and is up by 9.4% YoY and 2% QoQ. The operating profit of Infosys stood at Rs. 7,484 Cr. in Q3FY22 and has gone up by 13.6% YoY and 7.3% QoQ. Further, Wipro has recorded an operating profit of Rs. 3,553 Cr. which has gone up by 5.1% YoY and 1.7% QoQ.
- In the case of Operating Profit, on a year as well as a sequential basis, Infosys has outperformed both TCS and Wipro.
- The Operating Profit Margin of TCS is 25.0% for Q3FY22 down by 1.6% YoY and up by 0.6% QoQ. The same is 23.5% for Infosys which has also reported a similar trend like TCS and has noted the fall of 1.9% YoY and 0.1% QoQ. Wipro has recorded the highest downfall in its operating profit margin to 17.5% down by 4.1% YoY and 0.3% QoQ.
- Reasons for Margin Contraction: 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. 9,769 Cr. for the quarter ended 31st December 2021 and is up by 12.3% YoY and 1.5% QoQ. Whereas the Net Profit of Infosys for the same period is Rs. 5,809 Cr. up by 11.8% YoY and 7.2% QoQ. Net Profit of Wipro in Q3FY22 is 2,969 Cr. which has gone up by just 0.1% YoY and 1.3% QoQ.
- In the context of Net Profit, TCS has presented good growth yearly figures while Infosys has recorded good quarterly figures.
- The Net Profit Margin of the company of TCS, Infosys, and Wipro for Q3FY22 stood at 20.0%, 18.2%, and 14.6% respectively.
iii) Cash Flow Metrics:
- The Operating Cash Flow (OCF) of TCS is of whooping Size of Rs. 10,085 Cr. as of 31st December 2021 against Rs. 3.006 Cr. of Wipro for the same period.
- In the case of Operating Cash Flow as a % of Net Profit, TCS and Wipro have reported OCF as a % of net profit is 101.2% for Wipro, while the same is 111.1% for TCS. Infosys has not reported this figure.
- The Free Cash Flow (FCF) of TCS, Infosys, and Wipro for Q3FY22 is Rs. 9,943 Cr., Rs. 5,399 Cr., and Rs. 2,447 respectively.
- The FCF as a % of Net Profit is 101.8% for TCS while the same is 92.9% is for Infosys and 82.4% for Wipro, 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 Q3FY22 stood at 50.7%, 31.6%, and 5.5% respectively against 49.1%, 31.9%, and 5.6% in Q3FY21.
- Similar to TCS the revenue mix of the company in terms of geography wise has also not changed much
- The contribution of the Europe Business and India Business in Q2FY22 stood at 24.9%, and 3% respectively against 24% and 2.6% in Q3FY21.
- Wipro derives 58.6% of its revenue from American business as of 31st December 2021, the same was 58.55 in Q3FY21
- The contribution of the European Business and the Rest of the World in Q3FY22 stood at 29.7%, and 11.7% respectively against 28% and 13.4% in Q3FY21.
- 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 Q3FY22 and has taken the total count to 37 in Q3FY22. Wipro too had added 2 new clients in this category and has taken its total count of US$ 100 million+ clients to 17 clients. Whereas TCS has added 4 new clients in this category and its total count stood at 58 as of the quarter ended 31st December 2021.
- In the case of US$ 50 million-plus clients, TCS has gained 4 new clients and now has 118 clients as of Q3FY22, whereas, Infosys has gained only 2 clients in this category and hence its total count is 64 in Q3FY22. Here, Wipro has added 3 new clients, and now it is having 47 clients.
- For the category of US$ 10 million+ clients, Infosys has gained 4 clients in Q3FY22 and its total figure for this category reaches 274 while TCS has gained 9 clients and is now with 426 clients in Q1FY22. In the same category, Wipro has added 7 new clients and is having a total of 189 clients in this parameter.
- Infosys has gained 13 new clients in the category of US$ 1 million+ clients in Q3FY22 and is now having 854 Clients in this category. In the same criteria, TCS has gained 37 clients in Q3FY22 and is now having 1,175 Clients in this category. Here, Wipro is having 661 clients and has gained 38 new clients in this quarter.
- In the context of adding new clients, TCS has beaten Infosys & Wipro
- The Total Contract Value (TCV) of Deal Wins in Q3FY22 is $7.6 Billion, $2.5 billion, and $0.6 billion for TCS, Infosys, and Wipro 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 Q3FY22 is more than 2,651 while it is 1,738 for Infosys and 1,315 for Wipro.
ii) Client Parameters- Revenue Contribution:
- TCS does not report the revenue contribution of the clients. For Infosys & Wipro there are not any high dependency on the clients, here are the stats:
4) Employee Metrics:
- The Employee base of TCS is 5,56,986 as of 31st December 2021 while the same is 2,92,067 for Infosys and 2,31,671 for Wipro.
- Net Addition of Employees in Q3FY22 of TCS is 28,238 employees while Infosys has added 12,450 Employees in the same quarter. Wipro has added around 10,306 employees in Q3FY22. Infosys has revised the hiring guidance of 45,000 earlier in FY22 to 55,000 employees.
- Moving forward to Diversity wherein Women Employee % in Infosys is highest at 39.6% while it is 36% for TCS as of 31st December 2021.
- The attrition rate of the Last Twelve Months of both companies is 15.3%, 25.5%, and 22.7% for TCS, Infosys, and Wipro respectively.
- The Gross Utilization % is 82.7% for Infosys and 75.6% for Wipro. TCS does not release this data.
- Also, the Utilization % excluding Trainees is 88.5% for Infosys, 85.8% for Wipro, and the same data for TCS is unavailable.
- The Current Market Price of TCS, Infosys, and Wipro as of January 2021, is Rs. 3,857, Rs. 1,877, and Rs. 691 respectively.
- The Current PE of TCS, Infosys, and Wipro are 39.6, 37.4, and 31.4 respectively.
- The 3-Year PE Range of TCS is 26.8 while the same is 22.6 for Infosys and 19.2 for Wipro.
- As of now, Infosys and Wipro stock enjoys more premium valuation against TCS. Currently, Infosys stock is trading at a premium valuation of 65.5%, Wipro stock is trading at a premium valuation of 63.5%, and the same is 47.7% for TCS.
What Should Shareholders Do?
Currently, all IT Stocks are trading at a Premium Valuation. It is crystal clear that all these 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. One should also notice the development of digitalization and its pace. Looking at the prospect of the IT Industry and its aggravated pace of growth, the industries, and underlying stocks are expected to hold premium valuation. Hence one should assess carefully before making any investment decision, and one should do not invest in a lumpsum manner but should follow a staggered manner of investing.