In a first where two IT services majors TCS and Infosys announced their results on the same day, both reported a better than average growth for the quarter that ended on March 31, 2019.
The performance by the companies were better than market estimates at a revenue growth of 11.4 percent and 9 percent for TCS and Infosys respectively. For TCS, it is the strongest revenue growth in the last 15 quarters.
While TCS continues to be bullish about growth, Infosys’ outlook was below expectations as its investments in digital talent and its efforts toward localisation continue. Infosys forecasts compressed margins for the year ahead at 21-23 percent, much lower than its margin of 22.8 percent margin in FY19.
The IT major lowered its revenue guidance to 7.5-9.5 percent in constant currency terms. The company had set the revenue guidance at 8.5 to 9 percent in FY19 as opposed to 6-8 percent in FY18.
Sail Parekh, CEO, Infosys said, “We have full acceleration for the full year and therefore guidance, if you recall for the FY18 it was 6-8 percent, we bumped it up to 7.5-9.5 percent. So from our perspective, it is a very strong movement of guidance in the growth direction. We have not actually cut it, 7-5 and 9.5 are in the range of growth we anticipate for the full year.”
In terms of margins, Parekh said the company is making significant investments in talent in the digital space, re-skilling and localisation to build a future-ready Infosys. “We will now see improved operating margin as we go ahead of FY2020,” he added.
Parekh completes a year as the CEO in Infosys and analysts say that the company has performed well under the new management. Parekh took over as the CEO of Infosys in January 2018.
On the otherhand, TCS posted record high margins at 25.6 percent, which Rajesh Gopinath said are the highest among the IT services globally. The company gave the margin guidance of 26-28 percent for FY20, again on the higher side.
TCS’s attrition rate was 11.3 percent as opposed to 20 percent of Infosys. UB Pravin Rao, COO, Infosys said that the company is taking multiple measures bring the number of 15 percent.
However the digital front shows a healthy growth as investment in digital is beginning to pay dividends. Digital revenues now account for close to a third of total revenues and growing at upwards of 40 percent for both the companies.
In the quarter ended March 31, 2019 TCS’s digital revenue grew at 46.4 percent year-on-year (YoY) and Infosys revenues grew 41.1 percent in constant currency YoY.
According to analysts, the strong growth last year will continue next year as well though margins might come under pressure as companies chase bigger deals.
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