In­fosys trails TCS in Q1 on muted BFSI per­for­mance

But out­look is strong on large or­der wins as well as ro­bust ad­di­tions to the $100 mil­lion rev­enue seg­ment

Business Standard - - MARKETS - RAM PRASAD SAHU

Even as there was no sur­prise in store dur­ing the June quar­ter per­for­mance of In­fosys com­pared to Tata Con­sul­tancy Ser­vices, it was a study in con­trasts. The key dif­fer­ence was in the per­for­mance in the bank­ing and fi­nan­cial ser­vices (BFSI) seg­ment, which ac­counts for over 30 per cent of rev­enues for both com­pa­nies.

While In­fosys reg­is­tered a se­quen­tial fall in rev­enues by 0.2 per cent, the same for TCS was a growth of 3.7 per cent.

The com­men­tary on the fi­nan­cial ser­vices space also dif­fered be­tween the two com­pa­nies. While TCS said banks are in­creas­ingly giv­ing in­cre­men­tal con­tracts, In­fosys in­di­cated that banks con­tinue to de­pend on their own cap­tive cen­tres as far as the June quar­ter is con­cerned.

The out­look for both, how­ever, has been op­ti­mistic with in­creases in over­all deal wins as well as gains in the fi­nan­cial ser­vices space. In­fosys in­di­cated that of the $1.1 bil­lion large deals, 40 per cent has come from the fi­nan­cial ser­vices space (over­all trail­ing con­tract value of $3.5 bil­lion). TCS, too, in­di­cated strong rev­enue po­ten­tial with to­tal con­tract value of $4.9 bil­lion. More­over, In­fosys added four $100 mil­lion clients tak­ing the count to 24. This is among the high­est in re­cent quar­ters while TCS added two in this rev­enue bucket. The ad­di­tion of high value clients and deal wins bodes well for both the com­pa­nies.

De­spite the strong out­look, In­fosys stuck to its ear­lier FY19 growth guid­ance of 6-8 per cent on a con­stant cur­rency ba­sis as com­pared to the dou­ble digit growth ex­pected from TCS. An­a­lysts say while both the com­pa­nies are bullish about the de­mand land­scape, there will be ex­e­cu­tion chal­lenges for In­fosys given the lead­er­ship tran­si­tion and some se­nior level ex­its. How­ever, they be­lieve that In­fosys will be able to end up at the higher end of the 6-8 per cent range given strong growth in re­tail (6.4 per cent, the high­est across ver­ti­cals), im­prov­ing fi­nan­cial ser­vices out­look and trac­tion in the dig­i­tal space.

Like TCS, In­fosys, too, re­ported a strong 25.6 per cent growth in dig­i­tal rev­enues and the seg­ment now ac­counts over 28 per cent of rev­enues as com­pared to TCS’ 25 per cent. Given the higher mar­gins from the dig­i­tal seg­ment, an­a­lysts be­lieve that im­prov­ing pro­por­tion of dig­i­tal should help In­fosys im­prove on its 22-24 per cent mar­gin guid­ance for the cur­rent fis­cal. Given the pric­ing pres­sures in the legacy busi­ness, vol­ume gains and au­to­ma­tion are some of the other levers on the prof­itabil­ity front for the com­pany.

While there is a clear out­per­for­mance by TCS, an­a­lysts be­lieve that the 30 per cent pre­mium in val­u­a­tions are ex­pected to nar­row a bit as In­fosys rev­enue growth gains trac­tion.

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