The story of Infosys lagging peers in volume growth is becoming all too familiar now. This June quarter, it has got worse as the company also had to take a huge pricing cut, something it very rarely does.
To compound matters, the firm also reduced its annual revenue growth guidance to just five per cent in dollar terms from 8-10 per cent earlier.
TCS, on the other hand, has again scored over Infosys on all keenly followed factors such as volumes, pricing as well as in growth in key segments and geographies.
The only area where Infosys did better than TCS is in acquiring large clients during the quarter.
Growing ahead
In the June quarter, TCS witnessed a 3 per cent sequential growth in revenues in dollar terms, while net profits increased by 2.9 per cent. Infosys, on the other, experienced 1.1 per cent decline in revenues and 10.2 per cent fall in profits.
TCS managed to grow profits despite effecting wage hikes, when Infosys’ profits fell despite deferring salary increases.
Volumes (person-months billed) grew by 5.3 per cent for TCS, while it expanded by just 2.7 per cent for Infosys.
What was even more disconcerting was the fact that Infosys had to take a decline of 3.7 per cent in realisations. This was unanticipated by the markets.
The company has indicated that there would be pricing renegotiations in some contracts. There is also a hint that the firm may be reacting to competition by tweaking billing rates, more so in light of the difficult macro environment.
Holistic growth
It remains to be seen if the discount would ensure higher volumes for Infosys in the coming quarter. TCS, on the other hand, had to take just a one per cent decline in pricing.
In three of its key verticals – BFSI, telecom and manufacturing, TCS witnessed growth that was faster than the company’s overall revenue rate. It is also noteworthy that for the second consecutive quarter, the company has managed to grow the troubled telecom vertical.
This signals a fairly broad-based growth.
Infosys, in contrast, witnessed a marginal decline in revenues from its BFSI vertical and a steep 8 per cent fall in the ECS (energy, utilities and communications) segment as there was a ramp down in one of its utility client’s project.
Infosys has witnessed client-specific issues for the second quarter in a row, which raises concerns on customer spends and overall revenue visibility.
For both the companies though, the North American geography grew. But in Europe, Infosys had to contend with an 8.1 per cent fall in revenues.
In terms of client additions, Infosys added one client in the $200-million category and six customers in the $50-80 million buckets. TCS had just three additions in the $50-million plus category.
TCS’ consistent broad-based growth and its ability to stay ahead of expectations should help it maintain its more favoured status in the market vis-à-vis Infosys.