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…