Comparison of Infosys and TCS in light of Q2FY13 results

Infosys and TCS have announced their Q2 results for FY13 and it is a good time to compare the two and see where Infosys stands in comparison to TCS. This quarter has been important for Infosys, who in recent times has lost some of its reputation as being the industry bell-weather. Last few quarters have been in tough for Infosys and the peers have performed much better. TCS on the other hand has only consolidated its position as undisputed market leader.
In the analysis of the data below; we will try to see the signs of recovery and possibilities for Infosys.

INFY Vs TCS (comparison of size)

Parameters	INFY	TCS
Q2F13 Revenue (Million US$)	1797	2852.6
Quarter on Quarter Growth (%)	2.6	4.6
Operating Profit Margin (%)	26.3	26.7
Net staff	153761	254076
Attrition Rate (%)	15	11.4
Net staff addition in Q2F13	2610	10531
% Utilization	67.5	72.8
Revenue per staff per month in US$	3895.656	3742.44

TCS has done a sterling performance when in comes to quarter on quarter growth and curbing the attrition rate (amongst the lowest in the industry). What is remarkable is that it has overtaken Infosys on Operating margin as well!
The takeaway for Infosys here is that it has shown flexibility to reduce its margin. The revenue per staff for Infosys is higher than that of TCS though it has a lower utilization figure (67.5%). In fact if Infosys was able to increase the utilization to TCS level (72.8%); additional 43.5 MUS$ could have been generated in the quarter (theoretical). This could have pushed the QoQ growth to 5.5 from current 2.6.

Revenue from Verticals

Some of the observations are:

1.       Banking and Finance contribute the most for TCS while MFG contributes the least.

2.       In Infosys, the spread is more even with ECS being the smallest of all the verticals.

Note** For simplification; I have consolidated the verticals in TCS to match Infosys nomenclature

·         ECS = Telecom, Energy & utility and media & entertainment

·         RCL = Retail & Distribution, Hi Tech, Life Sciences & Healthcare, Travel & Hospitality and others

·         MFG = Manufacturing

·         Finance = Banking, Financial Services, Insurance

Geographic Breakup of revenue

Infosys has a much bigger exposure to North America and smaller exposure to Europe and India compared to TCS. This can be seen as a risk. Incidentally Infosys has just announced that it has completed the ground work for Infosys 3.0 strategy. As part of that strategy; Infosys has a vision to have a spread of revenues coming 40% from North America (and Canada); 40% from Europe (and UK) and 20% from rest of the world. Infosys also aspires to get even revenue; i.e.; 1/3 revenue from Transformation; 1/3 revenue from Optimization and 1/3 revenue from Innovation. (Interestingly that will not be by reducing the current revenues from high contributing area but by increasing the revenues from low contributing area. Talk of human ambitions!) New focus area like Sustainability, Engineering, Cloud, Products & Platform have been included. Infosys also aspire to do atleast 15% local hiring abroad to build a truly global company image. Infosys 3.0 is aiming at balancing the portfolio; strengthening the core and growing new business area. Incidently the credo for Infosys 3.0 is "Building Tomorrow's Enterprise". The credo for Infosys 2.0 was "Win in the Flat World" and that for Infosys 1.0 was "Powered by intellect; driven by values". How effective has been the implementation of Infosys 3.0 is to be seen in the times to come.

Top Contributing clients

Million Dollar Clients	INFY	TCS
>US$ 1M < US$ 5M	413	538
>US$ 5M < US$10M	205	269
>US$ 10M < US$ 20M	134	182
>US$20M < US$ 50M	195	108
>US$ 50M < US$ 100M	127	45
>US$100M	14	14

Infosys seems to have a significantly higher number of clients contributing revenue between 20 to 100 Million US$. This looks favorable considering that a smaller percentage of overhead cost (compared to revenue)will be incurred to serve a smaller number of high end clients . 

Conclusion

Infosys seems to be moving in the right direction. If the Infosys3.0 strategy is to click and bear fruits; we will see Infosys regaining its bell-weather tag. Acquisition of Loadstone; announcing salary hike for employees and keeping a low profile and cautious approach to the future might just work well for Infosys. TCS on the other hand is at the peak of its success and the expectations have already gone through the roof with its shares valuated at more than 14 times premium. Will be interesting to watch out for the last 2 quarters of the FY 13.

Note: The opinion expressed on the blog are my personal views. The data for the analysis has been sourced from the quarterly results published by both the companies on their websites.