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Bridging the Gap: TCS topples Infosys as Most-valued IT company

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Let me take you back by 6 years, when I took a plunge into stock markets – Infosys was a marquee name for me then and, may be, even now. And, at that time I was not even aware that TCS was a bigger company than Infosys (Oops! my ignorance). In fact, TCS was not even listed on the stock exchanges then, if I am not wrong.

Yes, TCS always lacked that extra-edge and aura that revolved around the Infosys, ever since its inception. Though, the success story of TCS cannot be undermined by any bit and its business remains as robust as ever.

Some IT analysts are of the opinion that this extra zing is due to the sheer professionalism that the Infosys management has exhibited under the leadership of Narayan Murthy followed by Nandan Nilekani. While other wise people say that Infosys has always indulged and stuck with the high margin game.

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The fact of the matter is that the bellwether IT major Infosys Technologies still continues to remain the torchbearer of the Indian outsourcing industry – this, even as its business size is trifle smaller than that of TCS. But, it’s high time that TCS regain its reputation as the most illuminative Indian IT company.

The much needed shift is already shaping up as TCS stands out as a much stronger company coming out of the global recession especially over the last two quarters. Infosys Technologies has been toppled by the country’s leading software exporter TCS as the most valued IT company.

In fact, the Tata group company has outperformed Infosys in terms of various parameters including strong demand momentum. For the Q1 results, Infosys reported a negative surprise with 2.6% drop in its profits, but it was an up-tick in its full-year revenue guidance on hopes of strong outsourcing demand which proved as a face-saver to some extent.

On the other hand, TCS came up with a stellar performance of 24% jump in the June quarter profit of Rs.1906 crore as against Rs.1534 crore for the same quarter last year. On the back of stable pricing environment, the company continues to log geographically and industry-wise spread broad-based growth. Two contrasting results performances, indeed!

Interestingly, led by robust revival of the global economy from the worst recession ever, both Infosys and TCS battles with the problem of rising employee churn and high attrition levels on the back of higher demand for IT professionals during the April to June quarter. However, TCS stands out in the way that it has managed its staff constructively over the last few quarters.

TCS logged a strong 8% volume growth as against 6% growth reported by Infosys. In fact, the Ebitda margin at 29.3% for TCS has almost closed down the gap with that of Infosys which stood at 31.6%. The revenues for TCS grew by 62% while that of Infosys surged by a lower 4.8%.

On Friday, TCS rallied 6% to notch the market capitalization of Rs.1.63 lakh crore as against that of Rs.1.59 lakh crore of Infosys. The real catch is the margin game over where the erosion was much higher in case of Infosys at 180 bps vis-à-vis 36 bps for TCS. Thus, TCS is gradually improving on the margin front relative to Infosys.

Better than expected bottom-line led by cost-efficiencies and improving deal pipeline has placed TCS on a forward curve as against Infosys. Further, below-expectation results by Infosys and upward revision of earnings from TCS will provide an added edge to the Tata group company in narrowing down the valuation gap between both the Indian IT giants.

What’s your take? Can TCS sustain its pace of momentum?

  1. Pradeep Ram says

    always infy rocks..

  2. Pradeep Ram says

    always infy rocks..

  3. Liju Philip says

    The amount of horror stories i have heard about working in Infosys is certainly lesser than what i have heard about either Wipro or TCS.

    Not sure why.

  4. Varun Jindal says

    To me Infosys is still the most-valued IT company. I don’t know if this bias comes to me naturally for having worked with Infosys or is it based on the valid arguments. Let me tell you, even in board rooms of other IT companies, management talks more about Infosys than TCS. What Infosys sets, others follow. Infosys’ performance & standards become benchmarks for other companies. What I have seen in the B-school placements also is that a company is more inclined towards a candidate having worked with Infy than TCS, if they were to choose a candidate from many with equivalent credentials & performance.

    1. Viral says

      Hello Varun,

      I don’t disagree with you!

      Infosys has simply been toppled from the official ranking as per the market capitalization figures. Though the company still remains an undisputed bellwhether of Indian IT companies, even now.

      But, Infosys will have to take active interest in domestic work opportunities & even big governmental contracts. At the same time, they also need to dilute some expectations in terms of margin requirements for their business.

  5. Himanshu Chanda says

    Can TCS sustain its pace of momentum?
    Definitely! Definitely! Definitely! Definitely!
    (Disclaimer: I work in TCS :D )

    1. Viral says

      Hey Himanshu… agreed wtih you that TCS will definitely sustain the momentum. In fact, it has also done well by significantly diversifying its focus on the domestic market as well.

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