TCS Vs. Infosys | Q4FY21 Results Comparative Analysis

Published on 16 April 2021
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IT Sector Leaders TCS and Infosys have released their Quarterly Results for Q4FY21 this week. Both the companies have posted decent quarterly results. And hence, In this blog, we will be comparing the performances of both companies as per their Q4FY21 results. Let’s begin!

Introduction:

TCS and Infosys, 2 leading companies in the IT sector of India have announced their quarterly results for Q4FY21 on 12^th April and 14^th April respectively. In this blog, we will be doing a comparative analysis of the quarterly result of both companies. This comparison will be mostly of Qualitative Type and the comparison will be done on basis of 5 points which are as follows:

TCS Vs. Infosys- Comparative Analysis

1) Financials: Revenue, Profitability, Cash Flow Markets:

A) Revenue Highlights:

In terms of Revenue (INR) on basis of sequential growth, TCS has outperformed Infosys. Revenue of the TCS has increased by 4% this quarter, while Infosys has reported growth of only 1.5% in Q4FY21.
While in terms of revenue (INR) on yearly basis, Infosys has reported growth of 13.1% YoY while TCS has only able to deliver growth of 9.4% in revenue.
Yet again in terms of Revenue (USD), TCS has outperformed Infosys by 2.2% in this quarter. QoQ growth of TCS is 5% while, Infosys revenue in USD terms has only able to grow by 2.8%.
Repeating the trend, Infosys has beaten TCS in terms of revenue growth (USD) on yearly basis. Revenue Growth of Infosys in Q4FY21 YoY is 13% and the same is 10% for TCS.
While computing the performance of Revenue growth of the companies on a Constant Currency basis, we see TCS again as the winner between the two on QoQ comparison. Revenue growth of TCS in Q4FY21 on a CC basis is 4.2% and Infosys only records growth of 2% QoQ. Also, Infosys has reported revenue growth of 9.6% YoY on a Constant Currency basis, and yet again TCS lacks behind Infosys in revenue growth on yearly basis.

TCS Vs. Infosys- Revenue Highlights- Q4FY21

B) Revenue Highlights- FY21:

In INR terms, the Total Revenue of the TCS stood at Rs. 1.64 Lakh Cr. accounting for 4.6% growth YoY. Whereas, Total Revenue of Infosys for FY21 is Rs. 1.05 Lakh Cr. and reported 10.7% YoY growth.
In USD terms, TCS reported revenue amounting to $22,174 million in FY21 and YoY growth of only 0.2%. Here, Infosys has performed well as the company recorded growth of 6.1% and the revenue of Infosys stands at $13,561 million in FY21.
In Constant Currency (CC) terms, TCS has recorded a de-growth of 0.8% in FY21 in its revenue and at the same time, Infosys has recorded immense growth of revenue of 5% in FY21.

TCS Vs. Infosys- Revenue Highlights- Q4FY21

C) Profitability:

In the context of Operating Profit, TCS has reported growth of 4.9% QoQ. Operating Profit fo TCS in Q4FY21 was Rs. 11,734 Cr. While negative growth has been recorded by Infosys of 2.3% quarterly and is Rs. 6,440 Cr.
TCS has reported growth of 17% YoY in Operating Profit whereas Infosys has reported significant growth of 30.7% YoY in their operating profit.
The Operating Profit Margin of TCS is at 26.8% in Q4FY21 with a growth of 1.3% YoY and 0.2% QoQ. While OPM of Infosys is at 24.5% in Q4FY21 with an expansion of 3.3% YoY and negative growth of 0.9% sequentially.
Further, both the company has presented a double-digit figure growth in Net Profit. Net Profit of the TCS is Rs. 9,246 Cr. in Q4FY21 with a growth of 14.8% YoY and 6.3% sequentially. On the other hand, Infosys has reported healthy growth in Net Profit of 17.5% YoY to Rs. 5,076 Cr. in Q4FY21 but the same went down by 2.3% QoQ.
TCS has posted a strong Net Profit Margin of 21.2% in Q4FY21 with an increase of 1% YoY and 0.5% QoQ. Here, Infosys lacks behind TCS, its NPM stands at 19.3% in Q4FY21 with an expansion of 0.7% YoY and contraction of 0.7% QoQ.

TCS Vs. Infosys- Profitability- Q4FY21

D) Profitability- FY21:

Operating Profit of the TCS for the whole financial year 2020-21 stands at a whopping Rs. 42,481 Cr. and has reported growth of 10.1% YoY. Whereas Operating Revenue of the Infosys for the same period stands at Rs. 24,622 Cr. and has recorded magnificent growth of 27.1% on yearly basis.
For the Fiscal Year 2021, the OPM of TCS is 25.9% and for Infosys, it is 24.5%. OPM of both the companies has increased by 1.3% and 3.2% respectively.
Coming to the Net Profit figure, then there is a huge gap between the TCS and Infosys. Net Profit of TCS is Rs. 33,388 Cr. in FY21 and has grown by just 3.2% YoY, and Net Profit of Infosys for the same FY is Rs. 19,351 Cr. with significant growth of 16.6% from its previous year net profit.
For the Fiscal Year 2021, the NPM of TCS is 20.3% which is down by 0.3% YoY and for Infosys, it is 19.3% and it has increased by 1% YoY.

TCS Vs. Infosys- Profitability- FY21

E) Cash Flow Metrics:

Infosys does not declare Operating Cash Flow and hence Operating Cash Flow as a % of Net Profit is not possible for the company as well.
On the other side, TCS has an Operating Cash Flow of Rs. 9,247 in Q4FY21 and Rs. 41,107 Cr. in the whole FY21.
In Q4FY21, TCS is having a free cash flow of Rs. 8,085 Cr. and Infosys is having a free cash flow of Rs. 5,824 Cr.
In FY21, the Free Cash flow (FCF) of TCS is up by 17.5% YoY and is at Rs. 37,968 Cr. while, the same has grown by 44% YoY to Rs. 22,020 Cr. for Infosys.
FCF as a % of Net Profit is 87.4% of TCS but the same is 114.7% for Infosys in Q4FY21. Whereas FCF as a % of Net Profit for TCS and Infosys is 89.4% and 113.8% respectively.
Overall, Infosys was a bit ahead in terms of growth in FCF and growth in FCF as a % of Net Profit.

TCS Vs. Infosys- Cash Flow Metrics- Q4FY21 & FY21

2) Revenue Mix

A) Geography Wise Q4FY21:

TCS generates 50.2% revenue from America, 32.8% from Europe, 5.6% from India, and 11.4% from the rest of the world.
While the other company, Infosys revenue from a geographical perspective are as follows: 61.6% from America, 24.4% from Europe, 3% from India, and 11% from the rest of the world.
The above figure shows that Infosys has a high dependency on America for its revenue. But overall, in a consolidated manner, both the company are generating revenue from America and Europe at the same level.

TCS Vs. Infosys- Revenue Mix- Geography-wise- Q4FY21

A) Segment Wise Q4FY21:

Both TCS and Infosys generate revenue from almost similar business segments.
TCS generates 32.2% revenue from the BFSI Sector which has given the growth of 13.3% to TCS while Infosys generates 33% from the same sector has reported growth of 15.6% in this sector.
Likely, the FMCG sector has also contributed a similar percentage to the revenue of TCS and Infosys i.e., 14.5% & 14.8% respectively.
Overall, Infosys has performed better than TCS in Vertical wise Constant Currency Growth YoY.
The contribution of the other sectors to the revenue and segment-wise revenue growth in this segment of these companies are as follows:

TCS Vs. Infosys- Revenue Mix- Segment-wise- Q4FY21

3) Demand Highlights- Client Parameters:

Infosys has able to get 3 Contracts of more than US$ 100 million in this quarter and has reached a total of 32 contracts in this category. But TCS has not been able to increase a single contract in Q4FY21 and the total contract of more than US$100 million is the same as Q3FY21 i.e., 48.
Further, TCS has increased a total of 4 clients in the category of US$50 million+ clients and has taken the total clients numbers from 97 in Q3FY21 to 101 in Q4FY21. In the same category, with the loss of 1 client, Infosys is having 59 clients in Q4FY21.
Also, there are no changes in clients of US$ 10 million+ customers for TCS and are at 615 clients in Q4FY21. While Infosys has gained 6 clients and has taken the total client figure of US$10 million+ clients to 252 in Q4FY21.
TCS and Infosys are having 1,665 & 779 clients in Q4FY21 of above US$ 1 million+.
In terms of Total Contract Value (TCV) of Deal wins, TCS has won deals of $9.2 billion in Q4FY21. Previously in Q3FY21, the company was having a TCV of $6.8 billion. Whereas, Infosys has only won TCV of only $2.1 billion in Q4FY21. Infosys had won $.13 billion in Q3FY21.
Total Contract Value (TCV) of deal wins in FY21 is $31.6 billion and $14.1 billion of TCS and Infosys respectively. Hence, TCS outperforms Infosys in terms of TCV of deal wins by a huge margin in FY21.
TCS is having around 2,500 total active clients. On the other hand, Infosys is having 1,626 clients.

TCS Vs. Infosys- Demand Highlights- Client Parameters - Q4FY21 & FY21

Client Contribution to Revenues:

TCS does not report any client's contributions to revenues.
While the contribution of clients of Infosys revenue presents non-dependency on top clients and consistency of the company. Client Contribution of Infosys is as follows:

TCS Vs. Infosys- Client Contribution to Revenues- Q4FY21

4) Employee Metrics:

As per Q4FY21 results, TCS is having a total of 6,88,649 employees and Infosys is having a total employee base of 2,59,619.
In this quarter, TCS has added a total of 19,388 employees whereas Infosys has added 10,307 employees.
TCS is having women employees of 36.5%, same is 38.6% for Infosys in the Q4FY21.
The attrition rate of the last 12 months is 7.2% in Q4F21 which is down by 0.4% QoQ and the Attrition rate for Infosys is 15.2% in this quarter with an increase of 5.2% from the previous quarter.
Gross Utilization is 82.2% for Infosys and Utilization is 87.7% excluding Trainees in Q4FY21.

TCS Vs. Infosys- Employee Metrics- Q4FY21

5) Valuation Comparison:

The Current Market Price (as of 15/04/2021) of TCS is Rs. 3,170 and of Infosys is Rs. 1,350.
Currently, TCS and Infosys are trading at a PE ratio of 37.1 and 32 respectively.
The historical average PE ratio of TCS ranges between 21-2 and of Infosys it ranges between 16-20.
As per the current valuation, both the companies are trading at 60%-70% premium valuation.

TVS vs Infosys- Valuation Comparison

Conclusion:

Both the IT companies, TCS and Infosys having good earning visibility. Also, healthy double-digit growth is visible for both the counters. But the only concern for TCS and Infosys and almost all the IT Companies are its Premium Valuation and hence, these companies might face some consolidation in the coming time.