With
the results of COGNIZANT hot off the press, we now have adequate data points
and hence a time for reflection and comparative analysis of the performance of
the leading IT firms for this quarter. Let’s take a quick re-look at the
comparative financial performance of the Top 5 Indian IT firms for the quarter
ending December 31, 2013. The changes made to the earlier version of my
analysis published last month covering the Top 4 Indian IT players other than
Cognizant are highlighted in YELLOW.
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.
Cognizant has surprisingly
had a very slow growth this quarter with a sequential QoQ growth of 2.2% which
is in line with its projections but way below the growth rates it has shown
over the last 8 quarters. Cognizant also has had its fiscal year ending on
December 31, 2013 and has grown by 20.5% YoY. It has given projections of
16.5% growth for the coming year ( year ending December 31, 2014) which is the lowest
growth this firm ever had since 2009. Prima facie it appears to be a case of a
supply problem rather than a demand problem at Cognizant. It appears as if the
delivery engine has become overheated as sustaining such high rates of
acceleration over prolonged periods of time is not very easy and perhaps the
firm will need to allow its delivery machinery to cool down before it can start
accelerating all over again. The overall employee count is 171,000.
Financial services is its biggest vertical which contributes 42% of its
revenues followed by Health care which accounts for 26%. North America
contributes 77% of its revenues and has grown at 17% YoY whereas Europe has
grown by 32% YoY and accounts for 18% of its revenues.
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, Cognizant, 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%, Cognizant at 2.2% and
Infosys trailing at 1.6%
2.
Cognizant leads in YoY Revenue growth at 20.9% with TCS
at 16.6%, 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%, Cognizant at 2.4% 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%, Cognizant at 25.7%, 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%, Wipro at 23% and
Cognizant trailing at 19%
6.
Cognizant leads in terms of SG&A expenses as a % of
revenues at 19.1% with TCS following at 18.5%, HCL at 12.4% and Infosys
trailing 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
|
CTS
|
Q3 Revenues(M USD)
|
2100
|
3438
|
1678.4
|
1321.3
|
2355.5
|
QoQ
Growth
|
1.6%
|
3.0%
|
2.9%
|
4.0%
|
2.2%
|
YoY
Growth
|
9.9%
|
16.6%
|
6.4%
|
14.5%
|
20.9%
|
Q3 Operating Profits(M USD)
|
526
|
1023
|
386
|
313.4
|
447.8
|
QoQ
Growth
|
16.6%
|
1.6%
|
5.2%
|
3.7%
|
2.4%
|
YoY
Growth
|
7.1%
|
27.2%
|
17.7%
|
39.4%
|
25.7%
|
As
% of Revenues
|
25.0%
|
29.8%
|
23.0%
|
23.7%
|
19.0%
|
Q3 Net Profits(M USD)
|
463
|
858
|
NA
|
241.6
|
324.3
|
QoQ
Growth
|
20.9%
|
14.7%
|
NA
|
7.1%
|
1.5%
|
YoY
Growth
|
6.7%
|
31.6%
|
NA
|
39.0%
|
16.3%
|
As
% of Revenues
|
22.0%
|
25.0%
|
NA
|
18.3%
|
13.8%
|
Q3 SG&A Expenses
|
233
|
635
|
NA
|
165
|
450.5
|
As
% of Revenues
|
11.1%
|
18.5%
|
NA
|
12.4%
|
19.1%
|
*Wipro
does not give P&L for Global IT services separately. There is a single
P&L for Wipro Limited
Note: The views expressed in the article above are purely the
personal views of the author and have nothing to do with the firm he works for
