Comparative Analysis of TCS, Infosys, Wipro and HCL -- Q3 FY14 updates

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, 2013 (Q3, FY14). 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.

Before we delve into the detailed analysis of the comparative performance of these top firms, let’s have a quick look at the macro level view in terms of the trends over the last 8 quarters. If we look at the period between December 2011 and December 2013,  Cognizant has grown its quarterly revenues by 41%(estimates), TCS has grown by 33%, HCL by 29%, Infosys by 16% and Wipro by 11%.  In the same period Global Majors like Accenture and IBM have grown by 10% and -8% respectively. In terms of operating margins as a percentage of revenues TCS has remained almost constant between 29-30% over the last 8 quarters whereas Infosys has come down from 31% to 25%. Wipro has gone up from 20% to 23% over the last 8 quarters, Cognizant has remained constant between 18-19% and HCL has shown a steep increase from 16% to 24%. In a nut shell all the Indian majors have grown in double digit terms over the last 8 quarters and all of them are aggressively pursuing margin improvement strategies.

Infosys growth rate which had somewhat stabilized over the last 2 quarters around 3-4% has taken a plunge to 1.7% in this quarter.  However the operating margins as  a percentage of revenues have strongly rebounded to 25% this quarter which indicates some of the strategies to regain market leadership are now bearing fruit. BFSI remains the leading vertical with 33.5% of the overall revenue share followed by Retail at 25%. The overall employee count is 158,000 and overall utilization was at 74%. The revenues from the Americas region declined by 0.8% sequentially whereas Europe grew by 5.5%.

TCS has been doing consistently well and has been growing steadily over the last 8 quarters. The QoQ revenue growth was 4% this quarter and is lower than the 5.4% growth rate last quarter. Its operating margins as a % of revenues are hovering around 30% in the last few quarters. BFSI remains the largest vertical for TCS as well and accounts for 42% of its revenues followed by Retail at 14%.  The overall employee count was 290,000 and overall utilization was 78% this quarter.

Wipro seems to be on the path to recovery if the performance over the last few quarters is looked at. There seem to be green shoots emerging and it did really well this quarter with a QoQ growth rate of 2.9%.  At the same time its operating margin as a percentage of its revenues has improved to 23% from 20% levels in Q1. BFSI is the largest vertical at Wipro with 26% of the revenue share followed by Manufacturing at 19%. The overall employee count was 146,000 and overall utilization was 72% this quarter.

HCL  is the company that has been showing steady growth over the last few quarters accompanied by a steady increase in its operating margins. This is a sign of a well-oiled engine whose operational efficiencies and strategies are joined at the hip. HCL has grown by 4% this quarter and its operating margins as % of revenues have shown a marked improvement from 16% in Q3, FY12 to 24% in Q3, FY14. Manufacturing is its biggest vertical with 34% revenue share followed by BFSI at 26%. The overall employee count was 88,000 and overall utilization was 84% this quarter.

RESULTS FOR QUARTER ENDING DECEMBER 31, 2013:

The summary of the Q3, FY14 comparative analysis for Infosys, TCS, Wipro and HCL is as follows:

1.       HCL leads in terms of QoQ Revenue growth at 4.0% with TCS following at 3.0%, Wipro closely following at 2.9% and Infosys trailing at 1.6%

2.       TCS leads in YoY Revenue growth at 16.6% with HCL following at 14.5%, Infosys at 9.9% and  Wipro trailing at 6.4%

3.       Infosys leads in terms of QoQ Operating Profits growth at 16.6%, with Wipro following at 5.2%, HCL at 3.7% and  TCS trailing at 1.6%

4.       HCL leads in terms of YoY Operating Profits growth at 39.4% with TCS  following at 27.2%,  Wipro at 17.7% and Infosys trailing at 7.1%

5.       TCS leads in terms of Operating Profits as a % of revenues at 29.8% with Infosys following at 25%, HCL at 23.7% and Wipro trailing at 23%

6.       TCS  leads in terms of SG&A expenses as a % of revenues at 18.5%, with HCL following at 12.4% and Infosys at 11.1%

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

Q3, FY14
Parameter	Infosys	TCS	Wipro	HCL
Q3 Revenues(M USD)	2100	3438	1678.4	1321.3
QoQ Growth	1.6%	3.0%	2.9%	4.0%
YoY Growth	9.9%	16.6%	6.4%	14.5%
Q3 Operating Profits(M USD)	526	1023	386	313.4
QoQ Growth	16.6%	1.6%	5.2%	3.7%
YoY Growth	7.1%	27.2%	17.7%	39.4%
As % of Revenues	25.0%	29.8%	23.0%	23.7%
Q3 Net Profits(M USD)	463	858	NA*	241.6
QoQ Growth	20.9%	14.7%	NA*	7.1%
YoY Growth	6.7%	31.6%	NA*	39.0%
As % of Revenues	22.0%	25.0%	NA*	18.3%
Q3 SG&A Expenses	233	635	NA*	165
As % of Revenues	11.1%	18.5%	NA*	12.4%

*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 once Cognizant comes out with its quarterly results...  

Please do feel free to post in your feedback on my views…