TCS VS Infosys

Hey guys, welcome to an interesting comparison of? the results of two IT giants - TCS and Infosys.

Let's look at the various different parameters such as profitability, operating performance and growth in the number of clients and rank them on the basis of their performance.

Metric #1 - Revenue and profit growth for a period of 3 years?

Revenue, often referred to as sales, is the income received from normal business operations. Higher the sales the better it is. Infosys reported 13.70% growth for sales for a period of 3 years whereas TCS reported 9.40%.?

The net profit is its profit after operating expenses and all other charges including depreciation, interest, and taxes from total revenue. Higher the growth in profit the better it is. Infosys reported 13.10% growth? whereas TCS reported 6.84% growth? for a period of 3 years. Which is nearly half of Infosys.?

Parameter- Sales & Profit Growth

• Revenue growth Three years

TCS- 9.40%

Infosys- 13.70%

Winner- Infosys

• Profit growth Three years

TCS- 6.84%

Infosys- 13.10%

Winner- Infosys

Metric #2 - Revenue and constant currency growth for FY22.

In terms of Indian revenue TCS recorded a growth of 16.8% while Infosys recorded 21.10% in FY22. In terms of USD revenue TCS recorded a growth of 15.9% while Infosys recorded? 20.30% in FY22.?

CC growth is refers to a fixed exchange rate that eliminates the change in currency. Companies with significant operations in other countries often represent their earnings in constant currency terms since floating exchange rates can often mask true performance. In terms CC growth Infosys recorded a higher growth.?

Parameter - Revenue and constant currency growth.

• Indian Revenue (Y-O-Y)

TCS- 16.80%

Infosys- 21.10%

Winner- Infosys

• USD Revenue (Y-O-Y)

TCS- 15.90%

Infosys- 20.30%

Winner- Infosys

• CC Growth (Y-O-Y)?

TCS- 15.40%

Infosys- 19.70%

Winner- Infosys

Metric #3 - Operating Margin.

Operating margin measures how much profit a company makes on a dollar of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax. It is calculated by dividing a company’s operating income by its net sales. Higher the operating margin the better it is.

Parameter- Operating Margin

TCS- 25.30%

Infosys- 23%

Winner- TCS

Metric #4 - Employee cost as % of revenue

Employee Cost Percentage is the percentage value of money spent on employee costs against the total revenue of the company during a specific period. It is the amount the company spends on salary and benefits. Employee cost forms the most important cost for any IT companies. Lower the employee cost the better it is.?

Parameter- Employee Cost as % of revenue

TCS- 40.50%

Infosys- 39.35%

Winner- Infosys

Metric #5 - Free Cash Flow as % of net profit?

Free cash flow is the cash left over after a company pays for its operating expenses and capital expenditures. Higher the free cash flow the better it is for any company. So TCS wins this one. However there is not much difference in the numbers.

Parameter- Free cash flow as? %? of net profit?

TCS- 102%

Infosys- 101.10%

Winner- TCS

Metric #6 - Growth in Total Contract Value Deal wins Q-o-Q Basis

Higher the growth in Total Contract Value Deal the better it is .TCS has clocked a massive growth of 48.6%.Compare to Infosys which has reported a de-growth of 9%. So TCS wins this one too.

Parameter- Growth in Total Contract Value Deal wins Q-o-Q Basis

TCS- 48.60%

Infosys -9%

Winner- TCS

Metric #7 - Growth in number of Clients in each vertical (Q-O-Q Basis )

Client contribution in each vertical is calculated on quarter on quarter basis comparing Q3FY22 and Q4FY22. As you can see the growth in the number of clients is higher for TCS compared to Infosys.?

Parameter- Growth in number of Clients in each vertical (Q-O-Q Basis )

Verticals:

USD 100 mn+ clients:? TCS- 0.0%? Infosys- 2.7%

USD 50 mn+ clients:? TCS- 1.7%? Infosys- 0.0%

USD 10 mn+ clients:? TCS- 3.1%? Infosys- 0.4%

USD 1 mn+ clients:? TCS- 0.6%? Infosys- (-0.1%)

Total: TCS- 1.2%. Infosys- 0.1%

Winner- TCS

Metric #8 - Attrition

Attrition is a reduction of staff for voluntary or involuntarily reasons. Employee leaving the organisation after working for a short time is like a brain drain for the company as the company is spending lot of money on training the employees. Lower the attrition is better for the company. Infosys reported 28% attrition which is quite high in comparison to TCS.

Parameter- Attrition (Q4FY22)

TCS- 17.40%

Infosys- 27.70%

Winner- TCS

Metric #9 - Return On equity

Return on equity shows that how much profit is generated by the company with the money shareholders have invested. It is computed by dividing profit after tax with net worth. Higher the return on equity the better it is and TCS has posted a very high ROE compared to Infosys.

Parameters- Return On Equity

TCS- 43.60%

Infosys- 29.20%

Winner- TCS

Metric #10 - Price to earnings

The P/E Ratio is a measure of the price paid for share relative to income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for unit of income. So therefore lower P/E ratio the better it is. As we can see, Infosys has a better P/E.

Parameters- Price to earnings Ratio

TCS- 35

Infosys- 33.3

Winner- Infosys

As you can see Infosys have scored better than TCS.?

Now let's see the guidance posted by these companies.

TCS:

Operating Margins in the long term will be (26-28%),however? in near term there will be some volatility in the margins.

INFOSYS:

Revenue Growth (13-15%) in Constant Currency, Operating Margins (21-23%).

Conclusion

Infosys is fairly better than TCS because it trades a lesser PE and has reported strong number in terms of sales and profitability. According to a report of Jefferies whenever Infosys trades at a 10% discount to TCS, its stock has outperformed TCS by 10% in the following 12 months.?

There can be headwinds in the short run due to very high attrition. However, in the long run the company has strong growth outlook given the guidance.

That was the whole comparison between TCS and Infosys.

Let us know in the comments which company's comparisons do you want to see next?

And, Which stock do you have in your portfolio,

TCS or Infosys?