Comparative Analysis of Top 5 Indian IT firms -- Quarter Ending Sep 30, 2012

The Cognizant results are out fresh from the oven now and hence it is again time to re-look at the performance of the Top 5 Indian IT firms for the quarter ending 30’th September, 2012.

Cognizant has been doing consistently well over the last few quarters and has been showing a steady high growth. For the quarter ending 30’th September, Cognizant grew QoQ by 5.3% and YoY by 18.2% in terms of revenues. The operating profit as a % of revenues at around 18-19% remains almost constant over the quarters. Cognizant has retained the FY13 forecast at 20% growth over FY12.

If one attempts to classify the Top 5 Indian IT firms on two axes, viz. Profitability and Growth the scenario looks as follows:

1.       HIGH PROFITS and HIGH GROWTH: TCS

2.       HIGH PROFITS and LOW GROWTH: Infosys

3.       LOW PROFITS and HIGH GROWTH: Cognizant

4.       LOW PROFITS and MODERATE GROWTH: HCL

5.       LOW PROFITS and LOW GROWTH: Wipro

The tension between Profitability vs. Growth is an age old one and while it is ideal to do well on both growth and profitability (like TCS) it is arguably good strategy to do very well on one of the parameters and moderately on the other. By this postulate I would rate the performance of TCS, Infosys and Cognizant ahead of the ones like HCL and Wipro. However when one looks at the key parameter from a stock market perspective (which is returns to the shareholder), I would tend to believe that the firms should balance the tension between profitability and revenues and ‘maximize the total dollar value of profits’. Looking at the “absolute” dollar value of the net profits, TCS and Infosys are way ahead of the rest of the pack.

The bubble scatter of the Top 5 Indian IT firms on the twin axes of Profitability and Growth is as follows with the size of the bubble being an indicator of Q2 revenues:

The summary of the Q2 performance analysis for Infosys, TCS, Cognizant, Wipro and HCL are as follows:

1.       Cognizant leads in terms of QoQ Revenue growth at 5.3% with TCS following at 4.6%, HCL at 3.2%,  Infosys  at 2.6% and Wipro at 1.7%

2.       Cognizant leads in YoY Revenue growth at 18.2% with TCS following at 13.0%, HCL at 11.1% , Wipro at 4.6% and and Infosys at 2.9%

3.       Cognizant  leads in terms of QoQ Operating Profits growth at 7.3% with HCL following at 3.3%, TCS  at 1.7%, Wipro at 0.3% and Infosys trailing at -3.5%

4.       HCL leads in terms of YoY Operating Profits growth at 51.0% with Cognizant following at 21.2%, TCS at 11.5%, Wipro at 4.6% and Infosys trailing at -3.7%

5.       TCS leads in terms of Operating Profits as a % of revenues at 26.7% with Infosys closely following at 26.3%, Wipro at 20.7%, HCL at 19.4% and Cognizant at 18.8%

6.       Cognizant leads in terms of SG&A expenses as a % of revenues at 20.3%, with TCS following at 18.6%, HCL at 13.0% and Infosys trailing at 11.7%

Following is the chart showing the comparative analysis of these top firms on various financial parameters for Q2, FY13:

Q2, FY13
Parameter	Infosys	TCS	Wipro	HCL	CTS
Q2 Revenues(M USD)	1797	2853	1540.7	1113	1891
QoQ Growth	2.6%	4.6%	1.7%	3.2%	5.3%
YoY Growth	2.9%	13.0%	4.6%	11.1%	18.2%
Q2 Operating Profits(M USD)	472	763	319	216	355
QoQ Growth	-3.5%	1.7%	0.3%	3.3%	7.3%
YoY Growth	-3.7%	11.5%	4.6%	51.0%	21.2%
As % of Revenues	26.3%	26.7%	20.7%	19.4%	18.8%
Q2 Net Profits(M USD)	431	643	NA*	162	276
QoQ Growth	3.6%	6.5%	NA*	3.8%	10.0%
YoY Growth	4.9%	21.8%	NA*	51.4%	21.6%
As % of Revenues	24.0%	22.5%	NA*	14.6%	14.6%
SG&A Expenses	211	531	NA*	145	384
As % of Revenues	11.7%	18.6%	NA*	13.0%	20.3%

*Wipro does not give P&L for Global IT services separately. There is a single P&L for Wipro Limited

Please feel free to send in your valuable feedback/comments on my analysis…

The Strategy Season blues: Crafting the strategy that is apt for your firm

Now is the time of the year when the corner offices of the top global firms are abuzz with the most important annual activity, which is to carve out the firm’s strategy for the year ahead! The crucial days ahead will determine the fate of the firm in the next financial year as well as in the years to come. In this article I will attempt to summarize my views on the key elements that the top IT firms should keep in mind while crafting their respective strategies.

The pundits are expecting the global economy to rebound and this will mean more and more firms will unleash their expansion and growth plans which will result in an increase of IT spending both for the “Operational” aspects of IT as well as the “transformational” and “innovational” aspects of IT.

Read on more at the following link:

http://www.infosysblogs.com/leadership/2012/10/the_strategy_season_blues_craf.html

Comparative Analysis of Infosys, TCS and HCL -- Q2, FY13 Update

With TCS announcing the results today evening for the quarter ending September 30’th, 2012, I have adequate data points from the 3 of the Top 5 Indian firms (Infosys, TCS and HCL) for a comparative analysis for Q2, FY13. As always, I am looking at the quarterly results in USD as per IFRS norms as this is the only way we can get to compare ‘apples to apples’. Like always I am sharing my analysis here as the media usually presents a medley of USD and INR results and one does not usually get a correct financial comparison of the leading IT firms.

“The Economist”  in its latest forecast talks about the three forces shaping the global economy viz. whether the latest policies in Europe will help to save the euro; whether lawmakers can steer the US economy away from the "fiscal cliff" that looms in early 2013; and whether China's response to its economic slowdown will succeed. On all three fronts, the magazine believes that favorable outcomes are likely. The growth forecast for the US and the rest of the world for 2013 has been revised upwards which is a very good sign for the Top 5 Indian IT companies.

Infosys seems to be on the recovery wave based on the results posted this quarter (Q2, FY13). It has grown QoQ by 2.6% and YoY by 2.9% in terms of its revenues for the quarter ending 30^th September, 2012. This is certainly a big welcome change from the last few quarters where the revenues fell sequentially for 2 quarters. The most refreshing aspect is that all the 4 verticals at Infosys have posted growth this quarter.

HCL has been going strong for the last few quarters and has posted a QoQ growth of 3.1% last quarter and 3.2% this quarter. More specifically it is showing a strong and consistent YoY growth in the range of 11-12% both in Q1 and Q2, FY13. It has also shown a whopping YoY growth in Operating margins to the tune of 51%. In contrast, Infosys has shown a decrease in its operating margins by around 3.7% YoY in this quarter. For the first time in the last several quarters Infosys allowed its Operating margins as a % of its revenues to fall below the ‘Infosys Gold Standard’ of 28%. This is what the analysts and media always wanted. Isn’t it?

TCS which has had a good QoQ growth of 3.0% in Q1, FY13 has shown an excellent and consistent growth in the quarter ending 30’th September, by 4.6% on a QoQ basis and 13% on a YoY basis. It has steadfastly held its operating margins as a % of revenues at 26-28% mark over the quarters. The volume growth of TCS in Q2, FY13 is 5%.

The summary of the Q2 performance analysis for Infosys, TCS and HCL are as follows:

1.       TCS leads in terms of QoQ Revenue growth at 4.6%, with HCL following at 3.2% and Infosys trailing at 2.6%

2.       TCS leads in YoY Revenue growth at 13.0% with HCL following at 11.1% and Infosys trailing at 2.9%

3.       HCL leads in terms of QoQ Operating Profits growth at 3.3% with TCS following at 1.7% and Infosys trailing at -3.5%

4.       HCL leads in terms of YoY Operating Profits growth at 51.0% with TCS following at 11.5% and Infosys trailing at -3.7%

5.       TCS leads in terms of Operating Profits as a % of revenues at 26.7% with Infosys closely following at 26.3% and HCL trailing at 19.4%

6.       TCS leads in terms of SG&A expenses as a % of revenues at 18.6% with HCL following at 13.0% and Infosys trailing at 11.7%

Following is the chart showing the comparative analysis of these top firms on various financial parameters:

Q2, FY13
Parameter	Infosys	TCS	HCL
Q2 Revenues(M USD)	1797	2853	1113
QoQ Growth	2.6%	4.6%	3.2%
YoY Growth	2.9%	13.0%	11.1%
Q2 Operating Profits(M USD)	472	763	216
QoQ Growth	-3.5%	1.7%	3.3%
YoY Growth	-3.7%	11.5%	51.0%
As % of Revenues	26.3%	26.7%	19.4%
Q2 Net Profits(M USD)	431	643	162
QoQ Growth	3.6%	6.5%	3.8%
YoY Growth	4.9%	21.8%	51.4%
As % of Revenues	24.0%	22.5%	14.6%
SG&A Expenses	211	531	145
As % of Revenues	11.7%	18.6%	13.0%

Please feel free to send in your valuable feedback/comments on my analysis…

Comparative Analysis of Top 5 Indian IT firms -- Quarter Ending June 30, 2012

Now that CTS has just announced their results for the quarter ending June 30, 2012, its time to take a re-look at the comparative positions of the Top 5 Indian players.

Cognizant has had an amazing quarter with 4.9% sequential QoQ growth (beating its guidance of 4.6%) which puts it in a different league among the Top 5 IT firms. Cognizant has overtaken Infosys and has attained the coveted number 2 position in the Indian IT industry. However it’s Operating Profits as a % of revenues is the lowest amongst the Top 5 players at 18.4% and its SG&A expenses is the highest amongst the Top 5 players.

The Indian IT firms can be classified into two categories:

1.       Category A: CTS and HCL with their very high sequential QoQ growth of 4.9% and 3.1% respectively but at the same time having a much lower Operating Profits as a % of revenues at Sub 20% levels (18.4% and 19.4% respectively)

2.       Category B: TCS, Infosys and Wipro with much lower revenue growth rates of 0.6%, -1.1% and -1.4% respectively but having higher Operating Profits as a % of revenues between 21-29%

The summary of the Q1 performance as per USD GAAP norms for Infosys, TCS, Wipro and HCL is as follows:

1.       CTS leads in terms of QoQ Revenue growth at 4.9%, with HCL following at 3.1% and TCS, Infosys and Wipro trailing  at 0.6%, -1.1% and -1.4% respectively

2.       CTS leads in YoY Revenue growth at 20.9% with HCL following at 12.2% and TCS, Wipro and Infosys trailing at 10.5%, 7.6% and 4.8% respectively

3.       HCL  leads in terms of QoQ Operating Profits growth at 27.4% with CTS following at 4.4% and TCS, Wipro and Infosys trailing at 2.3%, 0% and -7.4%  respectively

4.       HCL leads in terms of YoY Operating Profits growth at 40.3% with CTS following at 22.6% and TCS, Infosys, Wipro trailing at 18.9%, 12.4% and 2.2% respectively

5.       TCS leads in terms of Operating Profits as a % of revenues at 28.2% with Infosys closely following at 27.9% and Wipro, HCL and CTS trailing at 21%, 19.4% and 18.4% respectively

6.       CTS leads in terms of SG&A expenses as a % of revenues at 22.1% with TCS closely following at 19% and HCL, Infosys trailing at 13.2% and 11.6% respectively

Parameter	Infosys	TCS	Wipro	HCL	CTS
Q1 Revenues(M USD)	1752	2664	1514	1079	1795
QoQ Growth	-1.1%	0.6%	-1.4%	3.1%	4.9%
YoY Growth	4.8%	10.5%	7.6%	12.2%	20.9%
Q1 Operating Profits(M USD)	489	750	318	209	331
QoQ Growth	-7.4%	2.3%	0.0%	27.4%	4.4%
YoY Growth	12.4%	18.9%	2.2%	40.3%	22.6%
As % of Revenues	27.9%	28.2%	21.0%	19.4%	18.4%
Q1 Net Profits(M USD)	416	610	NA	155	251
QoQ Growth	-10.2%	4.3%	NA	28.1%	3.3%
YoY Growth	8.3%	13.4%	NA	36.0%	20.6%
As % of Revenues	23.7%	22.9%	NA	14.4%	14.0%
SG&A Expenses	204	507	NA	142	396
As % of Revenues	11.6%	19.0%	NA	13.2%	22.1%

*Wipro does not give P&L for Global IT services separately. There is a single P&L for Wipro Limited