Comparative Analysis of Infosys, TCS, Cognizant, Wipro and HCL -- Annual Performance FY16

Whilst all of us await eagerly with bated breaths for the results of the Top 5 IT Services firms for Q1, FY17, I thought it would be a good idea to walk you thru’ the annual performance of the Top 5 Indian IT Service firms for the last 12 months ending 31’st March, 2016 (FY16) so that we have a nice foundation and a well set benchmark for evaluating the performance of the top Indian IT firms in Q1, FY17.

The idea of this analysis is to present an ‘apples to apples’ comparison view to the readers unlike the view that comes from the media which is sometimes not an accurate representation of the reality on  the ground as they mix up numbers in INR with that of USD and that of GAAP with IFRS. My analysis is  based on the USD numbers as per IFRS norms based on the balance sheets released by the Top 5 Indian IT firms.  Besides the financial years of some of the firms such as Cognizant and HCL differ from the traditional Indian Financial year that we are used to which makes the annual results all the more difficult to compare. I have therefore used the duration of the last 12 months ending March 31, 2016 as the baseline financial year and have used the term FY16 while referring to this financial year. This enables us to look at the performance of all the firms for the same time period which further enhances the ‘apples to apples’ comparison that I was referring to.

FY16 has been a good year for all the firms in the Indian IT Services industry which have witnessed decent growth in this Financial Year. While the NASSCOM projections for FY16 were in the range of 12-14%, I would say that the top firms have been doing a decent job in terms of being able to accelerate the behemoths at growth rates ranging from 4-18%.

Cognizant continued its stellar march forward with an astounding growth rate of 18.2% in FY16 which given its whopping size of ~13 B USD is not a mean achievement. The operating profits growth of Cognizant, YoY in absolute terms during FY16 is also pretty impressive compared to other firms in its class. It has maintained its traditional operating margins as a % of its overall revenues figure at 17-18% which is the Cognizant’s NORMAL. Also what  is impressive is the acceleration in its sales/marketing related investments which are a whopping 20% of its overall revenues.

Infosys  has indeed had a rebound this year and FY16 is the year which will be remembered in the annals of history as the year where the sign of the derivative for Infosys changed and its growth trajectory reversed its direction. While the overall growth rate for FY16 was a modest 9.1%, it however needs to be noted that Infosys ranks second in the overall YoY growth during FY16 with all other top IT firms except Cognizant lagging behind Infosys. The good news is that Infosys will be joining the 10 B USD CLUB during FY17 which will be a milestone in the history of Indian IT industry with 3 of the Top 5 firms above the 10 B mark. The best part is that Infosys has managed to bounce back without compromising on its  GOLD STANDARD operating margins as a % of total revenues which continue to remain healthy above the 25% mark.

TCS has visibly slowed down this year and its YoY growth in FY16 is around 7% which though impressive for its behemoth size of 17 B USD but at the same time lacks the mojo which it had mustered in the previous years. It is too early to say if TCS has hit process, systems and structure related bottle necks which are tough to be maintained at the same levels of agility and responsiveness in  a company of its size. It might have to REIMAGINE its own structural, systemic and process related inner-workings the way it is reimagining the customers’ digital businesses. However its operating profits as a % of revenues is the highest in the industry at 26.5% which is a very healthy sign.

Wipro is lugging on with its rather lack-luster performance over the past few years with its annual growth stuck at 3.7% during FY16 which is indeed not a great sign for a 7 B USD firm. What is much more disappointing is that the operating profits in absolute terms have declined by 5% during FY16 which signifies increasing costs and stagnating revenues. The year FY17 will be an interesting year for Wipro as it will perhaps be a make or break year for this veteran Indian IT firm.

HCL  has been one of the few IT firms which was historically very predictive in terms of its performance and with its rather  steady and reliable growth. It has however taken a beating in FY16 with its overall rate of growth tanking at 7%. While the rate of growth is same as that of TCS, the moot point is that TCS is a 17 B USD firm whereas HCL is a 6 B USD firm which ought to grow with much more aggression. It looks like it has exhausted all the weapons in its arsenal and whatever gains it was showing in terms of non-linear revenues in the previous years especially in the Infrastructure Management space have now dried up. It is also worth highlighting that HCL has suffered a decline in its absolute operating profits YoY during FY16 by a tune of a whopping 8% indicating a heavy increase in its cost structure and drying up of non-linear revenues. FY17 will be a very interesting year for HCL which will probably be a sign changer in terms of its growth trajectory.

FINANCIAL RESULTS FOR TWELVE MONTHS ENDING MARCH 31, 2016:

The summary of the FY16 annual comparative analysis for Infosys, TCS, Cognizant, Wipro and HCL is as follows:

1.       Cognizant  leads in YoY Revenue growth at 18.2% with Infosys following at 9.1%, TCS & HCL both at 7.1% and Wipro trailing at 3.7%

2.       TCS leads in terms of YoY Operating Profits growth at 17.7% with Cognizant following at 14.1%, Infosys at 5.2%,  Wipro at -4.2% and HCL trailing at -7.7%

3.       TCS leads in terms of Operating Profits as a % of revenues at 26.5% with Infosys closely following at 25.0%, Wipro at 20.5%,  HCL at 20.1%  and Cognizant trailing at 17.3%

4.       Cognizant leads in terms of SG&A expenses as a % of revenues at 20.0% with TCS following at 17.4%, HCL at 12.8% and Infosys trailing at 12.4%

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

FY16
Parameter	Infosys	TCS	Wipro	HCL	CTS
FY16 Revenues(M USD)	9501	16545	7346	6235	12707
YoY Growth	9.1%	7.1%	3.7%	7.1%	18.2%
FY16 Operating Profits(M USD)	2375	4385	1506	1251	2196
YoY Growth	5.2%	17.7%	-4.2%	-7.7%	14.1%
As % of Revenues	25.0%	26.5%	20.5%	20.1%	17.3%
FY16 Net Profits(M USD)	2052	3688	NA*	1118	1682
YoY Growth	1.9%	14.8%	NA*	-6.1%	14.3%
As % of Revenues	21.6%	22.3%	NA*	17.9%	13.2%
FY16 SG&A Expenses	1176	2886	NA*	796	2544
As % of Revenues	12.4%	17.4%	NA*	12.8%	20.0%

*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 the Q1, FY17 results are out in July so that we can have quick glimpses of the precursors and witness the unravelling  of the direction in which FY17 is likely to proceed. 

Please do feel free to send in your feedback on my views or revert to me in case you have any questions or need any clarifications…

Thanks and Best Regards,
Deepak

Note: The views expressed in the article above are purely the personal views of the author and have nothing to do with the company he works for