Infosys reflect that the investors waiting for the company to perform as good, if not better, than its largest peer
Tata Consultancy Services (TCS) may have to wait a little longer. Infosys, the country’s second-largest software exporter reported slower sequential growth in revenue and profit than
TCS for the June quarter (Q1). It also lagged on the fronts of employee attrition and growth in the banking, financial services, and insurance (BFSI) vertical.
The dollar-denominated sequential revenue growth of 2.3% after excluding currency effect, or in constant currency (CC), was much lower than the 4.1% growth reported by TCS. This is despite the fact that Q1 has historically been a strong quarter for software vendors as majority of clients finalise their annual software budgets in the March quarter. On the basis of reported currency, too, Infosys grew at a slower pace of 0.9% than the 1.6% growth for TCS.
The growth momentum of Infosys has slowed relative to TCS. The year-on-year growth in trailing 12-month (TTM) revenue of Infosys in each of the four quarters up to the June 2018 quarter has lagged TCS after leading in the previous five quarters.
In addition, Infosys failed to show improvement in revenue from the BFSI vertical unlike TCS, which reported a 3.7% sequential growth.
BFSI is a major segment contributing over one-third to the revenue of each of them. These factors may be a cause for concern as regaining the lost edge will be tough for Infosys amid intense competition.
To add to its woes, employee attrition at Infosys increased by 400 basis points (bps) to 20.6%, whereas it reduced by10 basis points to 10.9% for TCS from the quarter ago.
On the positive side, Infosys continued to add large clients – four in the above $100-million billing category compared with the previous quarter. It continued to retain guidance of 6-8% revenue growth for FY19 while retaining the operating margin band of 22-24%.
The momentum in revenue from the digital solutions was also intact though not as fast as that of TCS. For Infosys, it grew by 25% year-on-year, while TCS reported a 45% growth.
In the near term, the stock performance of TCS is likely to overshadow Infosys given the difference in their growth trajectories. But, the stock of Infosys may find some support due to the announcement of one bonus share for each existing paid up share.