With Wipro results hot from the oven, we now have the quarterly results for 4 of the Top 5 Indian IT firms for the quarter ending December 31, 2012 (Q3, FY13). Now we have adequate data points and hence a time for reflection and comparative analysis of the performance of these 4 leading IT firms for this quarter.
The global economy forecasts are not very positive for the first half of the calendar year 2013. The US economy with the “fiscal cliff” only fixed temporarily and with no imminent ‘surgical’ correction in sight due to the political compulsions does not augur well for the world’s economy. While the situation in US is not as bad as in Europe, the country seems to be making the same fiscal and monetary mistakes that the Euro zone did in the yester years. The Euro Crisis does not seem to show signs of fading away into the oblivion atleast in the next 12-18 months. However the Asia Pacific, Middle East and Latin American regions seem to be doing well compared to the developed nations. Australia is growing very well backed by its strong Mining industry and the Middle East is also expected to grow at 4% in terms of GDP in CY 2013. Latin America is showing similar growth trend as well. India and China together with Indonesia and Malaysia will be engines of growth in Asia. On the whole the global GDP is expected to grow at 3.4% YoY in 2013 and this is a good sign when compared to the 3% YoY growth in 2012.
IT firms will have to ride on the wave of increased IT spending in the emerging markets and rely on the ‘cost take out’ initiatives in the developed markets where the IT budgets will remain more or less unchanged over the last year. The key strategy that IT firms need to adopt is cutting the spend on support and maintenance projects by leveraging efficiencies such as re-use, accelerators and platforms and using these ‘savings’ for funding the transformational projects.
TCS QoQ growth of 3.3% for Q3, FY13 was in line with the guidance of 3% but is lower than the last quarter QoQ growth of 4.6%. The growth has indeed slowed down at TCS in Q3. However on the margin front TCS is able to maintain its margins very well between 27-28% for the last few quarters. On the other hand, Infosys has been seeing margin erosion from 28% a few quarters ago to 26% last quarter and 25% in Q3. They further expect this to go down to 24% in Q4. This is certainly a change in the strategic direction at Infosys which has moved away from the industry leading margins strategy to a re-investment strategy which is useful in the long run.
HCL has shown a QoQ growth of 3.6% in Q3, FY13 vis. a vis. 3.2% QoQ growth in Q2, FY13. Despite the challenges in the market and the bad economy, HCL is accelerating and does not show signs of slowing down. It is leveraging its strengths in Hi-tech, Engineering and R&D verticals and specifically in Infrastructure space to boost its market share. The more interesting trend to note is that its operating profits have increased by a whopping 41.5% YoY in Q3, FY13 indicating that HCL is attempting to go up the value chain and improve its profitability.
Wipro has continued its trend of QoQ growth from Q2 and has posted a growth of 2.4% QoQ for the quarter ending December 31, 2012. The operating margins remains constant over the last several quarters at 20.8% but this does not mean much in today’s times when most IT companies manage to keep their operating margins intact by ‘adjusting’ the variable pay of their employees. However Wipro also seems to have bounced back as can be seen from its decent growth performance in the last 2 successive quarters after a few preceding quarters of de-growth.
Infosys has shown a QoQ growth rate of 4.2% for this quarter (Q3, FY13) which was much higher than that in the previous quarter (excl. Lodestone) and 6.3% growth QoQ (incl. Lodestone) in Q3, FY13. This has sent a clear signal to the market that Infosys has bounced back. Infosys had shown de-growth in Q4, FY12 and Q1, FY13. People in the market were keeping fingers crossed when it showed 2.6% growth QoQ in Q2, FY13 and were cautiously optimistic as they were not sure if this was a flash in the pan or if this growth trend would continue in the future quarters. A consistent and increasing growth trend in Q3 (even excluding Lodestone) certainly is a feather in the cap.
The summary of the Q3 performance analysis for Infosys, TCS, Wipro and HCL are as follows:
1. Infosys leads in terms of QoQ Revenue growth at 6.3% with HCL following at 3.6%, TCS at 3.3% and Wipro trailing at 2.4%
2. TCS leads in YoY Revenue growth at 14.0%, with HCL following at 13% , Infosys at 5.8% and Wipro trailing at 4.8%
3. HCL leads in terms of QoQ Operating Profits growth at 6%, with TCS following at 5.4%, Infosys at 4% and Wipro trailing at 2.9%
4. HCL leads in terms of YoY Operating Profits growth at 41.5% with TCS following at 6.3%, Wipro at 4.8% and Infosys trailing at -12.3%
5. TCS leads in terms of Operating Profits as a % of revenues at 27.3% with Infosys following at 25.7%, Wipro at 20.8% and HCL at 19.8%
6. TCS leads in terms of SG&A expenses as a % of revenues at 19.1%, with HCL following at 13.3% and Infosys trailing at 11.4%
Following is the chart showing the comparative analysis of these top firms on various financial parameters:
Q3, FY13
| ||||
Parameter
|
Infosys
|
TCS
|
Wipro
|
HCL
|
Q3 Revenues(M USD)
|
1911
|
2948
|
1577.2
|
1154.3
|
QoQ Growth
|
6.3%
|
3.3%
|
2.4%
|
3.6%
|
YoY Growth
|
5.8%
|
14.0%
|
4.8%
|
13.0%
|
Q3 Operating Profits(M USD)
|
491
|
804
|
328
|
229
|
QoQ Growth
|
4.0%
|
5.4%
|
2.9%
|
6.0%
|
YoY Growth
|
-12.3%
|
6.3%
|
4.8%
|
41.5%
|
As % of Revenues
|
25.7%
|
27.3%
|
20.8%
|
19.8%
|
Q3 Net Profits(M USD)
|
434
|
652
|
NA*
|
177.5
|
QoQ Growth
|
0.7%
|
1.4%
|
NA*
|
9.6%
|
YoY Growth
|
-5.2%
|
14.8%
|
NA*
|
59.1%
|
As % of Revenues
|
22.7%
|
22.1%
|
NA*
|
15.4%
|
SG&A Expenses
|
217
|
563
|
NA*
|
153
|
As % of Revenues
|
11.4%
|
19.1%
|
NA*
|
13.3%
|
*Wipro does not give P&L for Global IT services separately. There is a single P&L for Wipro Limited
I will be back with more updates and Magic Quadrant based competitive analysis once Cognizant announces its results in the first week of February.
Please do feel free to send in your valuable feedback/comments on my analysis…
