INSUBCONTINENT EXCLUSIVE:
The IT industry accounted for 8% of India's GDP (gross domestic product) in 2020.The Indian IT industry is one of the leading destinations
in the world for the services sourcing business
According to the India Brand Equity Foundation (IBEF) report, it accounts for approximately 55% of the global IT services industry market
future growth prospects.Business overviewInfosys is one of the leading Indian IT services companies offering traditional and digital IT and
services, retail, communication, energy and utilities, and manufacturing.TCS is a part of the Tata group
It has been offering IT services, business solutions and consultancy services for the past 50 years.The company holds a leading position
among Indian players in the IT services space
as Infosys, barring manufacturing
The company instead has a life science and healthcare division.Both the IT giants are competing for market share in similar segments
They are also actively securing new deals in each of the key verticals.Single-digit revenue growth (CAGR)In the last five years (2017-2021),
On the other hand, the revenue growth for TCS was led by the life science and healthcare division.Higher margins backed by lower
expensesBoth TCS and Infosys have healthy operating profit margins as they have kept their expenses low
The five-year average operating profit margin (OPM) for TCS and Infosys stand at 27% and 25.8% respectively.As we can see, TCS is leading in
this category.With respect to the bottomline, Infosys' net profit has grown at a CAGR of 6% against a 5% growth for TCS in the last five
years.However, in terms of net profit margins, TCS seems to be leading again with five year net profit margin at 21.2%, against 20% of
Infosys.Employee metricsIn the IT sector, employees are invaluable assets
Companies have to continuously invest in their employees to ensure their growth along with the company's growth
A dissatisfied employee's productivity is usually low which can lead to attrition.When assessing the human capital of a company, there are
two employee metrics to look at - revenue per employee and attrition.In the financial year 2021, the revenue per employee for Infosys and
attrition levels are the lowest in the industry.The attrition rate for TCS stood at 7.2% during the financial year 2021 compared to that of
an increase in sub-contracting costs due to high attrition levels.Shareholder payout through buybacks and dividendsInfosys and TCS have
bought back shares worth Rs 30,460 crore and Rs 48,000 crore respectively from the market in three different transactions in the last five
feels the share price is undervalued
When it buys back its shares, the earnings per share (EPS) rises
As a result, the price to earnings ratio (PE) falls, making it an attractive investment.A buyback is also a preferred route if the company
sees good growth in the near future and wants to retain profits instead of distributing to its shareholders.A company distributes its
profits to its shareholders in the form of dividends
Dividends can be in the form of cash or stock.The five-year average dividend yield for Infosys and TCS is around 2.9% and 2.1%
decent at 55.1% and 48.2%, respectively.Return on equityReturn on equity (ROE) measures how efficiently the company is using its equity
TCS has been more effective in terms of generating returns for its shareholders than Infosys.ValuationsThe Price to Earnings ratio (P/E) and
Price to Book Value (P/BV) are valuation ratios that help in determining whether the company's share price is overvalued or
A high P/E ratio indicates the shares are trading at a premium.The P/BV ratio measures the market valuation of a company to its book value
financial year 2021, Infosys acquired GuideVision, Kaleidoscope Animations, Inc, Beringer Commerce Inc., and Beringer Capital Digital Group
slow down in the first quarter of the financial year 2021 on account of the pandemic.The net profit in the first quarter was also
They saw a rise in unanticipated costs relating to keeping the work environment safe and enabling work from home to its employees.However,
by the end of the financial year, the company saw business rebound as the pandemic forced enterprises to lean on technology and digitally
expecting to capitalise on the rising demand for IT services
The number of deals the companies secured post-pandemic have also increased, indicating good growth prospects.Future prospectsInfosys
expects demand from its clients in digital, cloud, and data
Scaling their digital presence, strengthening their core, and reskilling their workforce and localisation has led to an increase in their
digital revenues and increased the deals they are securing since 2018.For TCS, the top management feels that the pandemic has been the
Infosys, on the other hand, could secure only nine deals in the quarter.Equitymaster's ViewWe reached out to Tanushree Banerjee, Co-head
of Research at Equitymaster to ask her view on both companies
Here's what she had to say ...While Infosys and TCS would be more or less at par when it comes to their financial performance in the
could give the fortunes of one of these companies a massive edge over the other, in the next few decades.How The Two Companies Have FaredIn
terms of revenue and profit growth, Infosys has a better edge than TCS
However, in terms of profit margins, TCS is leading.With the increasing demand for IT services in the post-pandemic era, retaining manpower
TCS is doing a better job at retaining its employees
But the gap in their valuations isn't very wide.Fundamentals and valuations play an important role in deciding which company is suitable for
So take a close look at these parameters before you choose the stock to invest.(This article is syndicated from Equitymaster.com)(This story
has not been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
