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TCS vs Infosys: While Tata gem misses margin estimates, Bengaluru-based firm disappoints on profit front; Q3 analysis in 6 charts

Kishor Kadam
TCS reported a 17.7% (YoY) and 0.3% (QoQ) growth in consolidated net profit at Rs 8,126 crore for the March 2019 quarter while Infosys clocked 10.5% (YoY) and 13% (QoQ) growth in consolidated net profit at Rs 4,078 crore

Software giants TCS and Infosys have published their December-quarter earnings. While Tata Consultancy Services' (TCS) profit margins missed analysts' estimates, Infosys' numbers disappointed on the net profit and margin front though its revenue and guidance met estimates.

The country's second-largest IT firm Infosys on Friday reported 12.2 percent (quarter-on-quarter) and nearly 30 percent (year-on-year) decline in its net profit to Rs 3,610 crore during the December 2018 quarter. The Bengaluru-based firm's revenue, however, grew 3.8 percent (QoQ) and 20.3 percent (YoY) to Rs 21,400 crore in the December 2018 quarter. The company has revised upwards its FY2018-19 revenue guidance in constant currency to 8.5-9 percent.

"With increased client relevance, we saw double-digit (10.1 percent) year-on-year growth in Q3 on a constant currency basis," Infosys CEO and MD Salil Parekh said. He added that the company also had another strong quarter in its digital business with 33.1 percent growth and large deals of $1.57 billion, which gives it confidence entering 2019.

To boost investors sentiment the company has announced a share buyback plan. The board of Infosys approved a buyback of equity shares from the open market route amounting up to Rs 8,260 crore (about $1.18 billion) at a price not exceeding Rs 800 per share, the statement added.

Infosys has also announced a special dividend of Rs 4 per share that would result in a payout of about Rs 2,107 crore (approximately $302 million). Infosys' shares closed 0.58 percent higher to Rs 683.70 on the BSE, before the announcement of the Q3 results.

Sanjeev Hota, AVP Research at BNP Paribas-owned brokerage Sharekhan said, Infosys' performance surprised positively with strong top-line growth for the quarter, though margin performance missed the mark.

"Increase in revenue guidance and better exit rate for FY19 provides comfort on double-digit growth in FY20. Buyback quantum seems to be below than expectation, however, will support the stock performance in the medium term," he added.

Meanwhile, IT bellwether TCS on Thursday posted 2.6 percent (QoQ) and 24.1 percent (YoY) profit growth in the December quarter. The firm reported a net profit of Rs 8,105 crore, its highest ever, guided towards a healthy 2019 saying it has a "strong" order pipeline.

However, shares of TCS slipped 2.45 percent to Rs 1,842 on the BSE on Friday as company disappointed on the margins front. It's operating margins dipped 90 bps to 25.6 percent on quarter-on-quarter. TCS' revenue grew 1.3 percent (QoQ) and 20.8 percent (YoY) to Rs 37,338 crore in Q3. Its results were declared post market hours on Thursday.

"We have had good order closures this quarter, and strong pipeline built up...a strong pipeline and a strong order flow set us up nicely for the new calendar year," managing director and chief executive Rajesh Gopinathan said while announcing the Q3 numbers.

Gopinathan further said the total contracts closed in the reporting quarter stood at $5.9 billion compared to $4.9 billion over a year ago and added that they were able to add one $100-million-plus client during the reporting three months period.

Analysts at brokerage Sharekhan said the revenue uptick was at par with expectations, but TCS missed the mark on margins.

Centrum Broking said, "TCS delivered a mixed bag for 3QFY19, with inline revenues, but tepid EBIT margin. Higher other income helped PAT, which was in line with estimates."

Here are six charts that help decode both companies' performance:

On the rupee revenue front, both TCS and Infosys had reported record numbers at least in 19 quarters. While TCS clocked a revenue of Rs 37,338 crore in the December quarter, that of Infosys was Rs 21,400 crore.

In case of TCS, the revenue growth of 1.3 percent (QoQ) in the December quarter was the lowest in the past four quarters while Infosys' revenue growth of 3.8 percent (QoQ) was the lowest in the past three quarters.

The Tata group's gem had a record Q3 net profit of Rs 8,105 crore at least in 19 quarters. At Rs 3,610 crore, Infosys' net profit was the lowest in the past six quarters.

While TCS' net profit growth of 2.6 percent (QoQ) was the lowest in the past four quarters, Infosys had a 12.2 percent (QoQ) decline in its net profit in the December quarter, the lowest in the past three quarters.

TCS' operating margins dipped 90 bps to 25.6 percent sequentially. The company attributed the fall in margins to currency movements and a rise in the cost of sub-contracted work. Infosys' operating profit margins fell 110 bps to 22.6 percent in December quarter, the lowest in at least 19 quarters.

In the December quarter, TCS' employee attrition rate has risen to a three-quarter high at 11.2 percent while Bangalore-based Infosys' attrition rate fell to 19.9 percent - that was the lowest in three quarters.

(With inputs from PTI)




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Also See: Infosys Q3 net profit falls 30% to Rs 3,610 cr; company announces share buyback of up to Rs 8,260 cr

TCS Q3 net profit jumps 24.1% to Rs 8,105 cr on robust digital demand, revenue up 20.8% to Rs 37,338 cr

Infosys to announce Q2 financial results today, IT major expected to report marginal growth in profitability

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