One
interesting trend is that unlike the previous quarters where the gap between
Infosys announcing the results and the remaining companies following suit took
a few days to a week or even more, this time all the Top 4 companies announced
their results within a 48 hour period. Looks like corporate governance and
financial adeptness is again back in vogue as the latest fad.
With
results of the top 4 of the Top 5 Indian IT firms for the year and quarter
ending March 31, 2014 released to the world, we have adequate data
points for a comprehensive comparative analysis and hence again a time for
reflection and rejuvenation for all of us.
Before
we delve into the detailed analysis of the comparative performance of these top
firms, let’s have a quick look at the 3 key trends that I am seeing in the
demeanor of these Top 4 firms.
Firstly
‘the move towards greater profits’ is a clear and certain change that is
happening uniformly across all the 4 firms. Gone are the days when only Infosys
and TCS would be hovering around 25-29% and the rest would move around 15-20%
operating profits levels. If you look at the Q4, FY14 results we see 3 out of
the 4 top firms with Operating profits as a % of revenues at around 25% and
with TCS clearly leading at 30%. Secondly all the Top 4 firms now are in the ‘5
B USD plus club’ with HCL being the latest entrant this year and TCS is the
lone player in the ‘10 B USD plus club’ and well on its way to join the
‘15 B USD plus club’ in FY15. Lastly the ‘share of North American
market’ as an overall % of revenues has been reducing across all the firms
and the share of Emerging markets and Europe has been increasing.
Infosys growth rate was showing signs of recovery in the past 6
quarters and signs of rebound were visible. It has now again somewhat taken a
beating and the firm finished Q4, FY14 with a QoQ drop of -0.4% in revenues.
However the yearly growth trend looks healthy with a 11.5% growth YoY and this
shows an upward trend and nearly doubled from 5.8% levels an year ago. The operating
margins as a percentage of revenues which had hit a rock bottom of 21.8%
three quarters back has rebounded to 25-26% in the last 2 quarters which
is a clear sign of success of the firm’s cost optimization strategies. The
overall employee count is 160,000 and overall utilization was increased to
74.4% at the end of Q4, FY14 up from 70% levels 4 quarters back. Infosys has a
client base of 898 active clients today with a net addition of 92 clients in
FY14. The firm has given a rather muted guidance of 7-9% growth for FY15
but the analysts expect that it will outdo its FY14 performance in FY15.
TCS has had yet another phenomenal year and closed the
financial year FY14 with a revenues of a whopping 13.4 B USD which is
more than double of what the firm did in FY10. It is a text book example of
‘high growth with high profitability’ characteristic and has further upped its
ante by taking its profitability to ~30% levels in this financial year. While
the QoQ revenue increase in Q4, FY14 was disappointing at 1.9% it is over
shadowed by rather sober 17% YoY growth levels in FY14 vis a vis FY13. The
overall employee count has crossed the magic number of
300,000 this quarter and its overall utilization was 78% this quarter.
The guidance for FY15 seems very positive and the firm is very confident of
outperforming its act in FY14. So we could expect 18-20% revenue growth for TCS
in FY15.
Wipro
has done quite well this quarter with a
QoQ growth of 2.5% and when this is seen in the wake of its consistent 2.5-3%
growth in the last 4 quarters, points to the fact that it has come out of the
woods. What is even more interesting is that it has managed to improve its
Operating margins by a tune of 4 percentage points in the last 4 quarters and
ended Q4, FY14 at 24.5%. It has managed to shrink its revenues from the North
American market to sub 50% levels in FY14 thus reducing its geo based market
risks. It has a total of 986 customers today with a net addition of only 8
customers in FY14. The year FY15 will be an interesting year for Wipro as it
will be an year when it will possibly bounce back to double digit growth after
a hiatus of 3 years.
HCL
is the only company that has been
showing a steady growth of 3-4% over the last several quarters. And as I
mentioned in one of my earlier communiques this will eventually become the norm
for the Indian IT services industry very akin to the much talked about “Hindu
rate of growth”. HCL has shown a CAGR of 14% over the last 3 years on the
revenue front and is accelerating with all cylinders firing on the
profitability front with a CAGR of a whopping 40% over the last 3 years. HCL
has shown a steep increase in its operating profits as a % of its revenue from
~15% levels 8 quarters ago to ~25% levels today which is a very significant accomplishment.
This silent achievement speaks volumes about the companies strategies in three
areas : viz. cost optimization in terms of eliminating wastes, improvement in
employee productivity and non-linear revenues especially in the Infrastructure
space.
A.
RESULTS
FOR FINANCIAL YEAR ENDING MARCH 31, 2014:
The
summary of the FY14 comparative analysis for Infosys, TCS, Wipro and HCL is as
follows:
1.
TCS leads in YoY
Revenue growth at 16.2% with HCL at 14.1%, Infosys following at 11.5% and
Wipro trailing at 6.4%
2.
HCL leads in terms
of YoY Operating Profits growth at 38.1% with TCS following at 25%,
Wipro at 16.2% and Infosys trailing at 3.7%
3.
TCS leads in terms
of Operating Profits as a % of revenues at 29.1% with Infosys following at 24%,
HCL at 23.3% and Wipro trailing at 22.6%
4.
TCS leads in terms
of SG&A expenses as a % of revenues at 18.3% with HCL following at 12.5%
and Infosys trailing at 11.9%
Following
is a chart showing the comparative analysis of these top firms on various
financial parameters:
|
FY14
|
||||
|
Parameter
|
Infosys
|
TCS
|
Wipro
|
HCL
|
|
FY14 Revenues(M USD)
|
8249
|
13442
|
6617.9
|
5180
|
|
YoY
Growth
|
11.5%
|
16.2%
|
6.4%
|
14.1%
|
|
FY14 Operating Profits(M USD)
|
1979
|
3906
|
1496
|
1207
|
|
YoY
Growth
|
3.7%
|
25.0%
|
16.2%
|
38.1%
|
|
As
% of Revenues
|
24.0%
|
29.1%
|
22.6%
|
23.3%
|
|
FY14 Net Profits(M USD)
|
1751
|
3139
|
NA
|
943
|
|
YoY
Growth
|
1.5%
|
22.9%
|
NA
|
39.9%
|
|
As
% of Revenues
|
21.2%
|
23.4%
|
NA
|
18.2%
|
|
FY14 SG&A Expenses
|
978
|
2457
|
NA
|
650
|
|
As
% of Revenues
|
11.9%
|
18.3%
|
NA
|
12.5%
|
*Wipro
does not give P&L for Global IT services separately. There is a single
P&L for Wipro Limited
B.
RESULTS
FOR QUARTER ENDING MARCH 31, 2014:
The
summary of the Q4, FY14 comparative analysis for Infosys, TCS, Wipro and HCL is
as follows:
1.
HCL leads in terms
of QoQ Revenue growth at 3.0% with Wipro following at 2.5%, TCS at 1.9%
and Infosys trailing at -0.4%
2.
TCS leads in YoY
Revenue growth at 18.8% with HCL following at 14.3%, Wipro at 8.5% and
Infosys trailing at 9.9%
3.
Wipro leads in terms
of QoQ Operating Profits growth at 9.2% with HCL following at 6.9%,
Infosys at 1.5% and TCS trailing at -0.2%
4.
HCL leads in terms
of YoY Operating Profits growth at 44.3% with Wipro following at 31.6%,
TCS at 27% and Infosys trailing at 16.8%
5.
TCS leads in terms
of Operating Profits as a % of revenues at 29.1% with Infosys following at
25.5%, HCL at 24.6% and Wipro closely following at 24.5%
6.
TCS leads in terms
of SG&A expenses as a % of revenues at 18.1% with HCL following at 12.2%
and Infosys at 11.5%
Following
is a chart showing the comparative analysis of these top firms on various
financial parameters:
|
Q4, FY14
|
||||
|
Parameter
|
Infosys
|
TCS
|
Wipro
|
HCL
|
|
Q4 Revenues(M USD)
|
2092
|
3503
|
1720.2
|
1361
|
|
QoQ
Growth
|
-0.4%
|
1.9%
|
2.5%
|
3.0%
|
|
YoY
Growth
|
7.9%
|
18.8%
|
8.5%
|
14.3%
|
|
Q4 Operating Profits(M USD)
|
534
|
1021
|
421
|
335
|
|
QoQ
Growth
|
1.5%
|
-0.2%
|
9.2%
|
6.9%
|
|
YoY
Growth
|
16.8%
|
27.0%
|
31.6%
|
44.3%
|
|
As
% of Revenues
|
25.5%
|
29.1%
|
24.5%
|
24.6%
|
|
Q4 Net Profits(M USD)
|
487
|
861
|
NA
|
264
|
|
QoQ
Growth
|
5.2%
|
0.3%
|
NA
|
9.3%
|
|
YoY
Growth
|
9.7%
|
32.1%
|
NA
|
39.8%
|
|
As
% of Revenues
|
23.3%
|
24.6%
|
NA
|
19.4%
|
|
Q4 SG&A Expenses
|
240
|
635
|
NA
|
166
|
|
As
% of Revenues
|
11.5%
|
18.1%
|
NA
|
12.2%
|
*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 on May 7, 2014. Please do feel free to post in your feedback on my
views…
Thanks
and Best Regards,
Deepak
Deepak
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
