Moody's Investors Service has affirmed Baa1 ratings for information technology stalwarts, Tata Consultancy Services (TCS) and Infosys.
Kaustubh Chaubal, Senior Vice President, Moody’s, noted that a solid balance sheet characterised by high liquidity and net cash position reflects the companies’ “good corporate governance practices.”
The reason the ratings of both companies are constrained to just two points above that of India (Baa3) is their exposure to the changing tax regulations in the country. Nonetheless, diverse operations, a history of strong operating results and profitability, remarkable free cash flow generating capabilities and minimal dependence on the Indian banking system helped Infosys and TCS remain at Baa1 rating.
Infosys
Moody's expects around 13 percent revenue growth for Infosys for the fiscal year ending March 31, 2023. However, a moderation in growth is expected in fiscal 2024, when revenue growth is likely to decelerate to 8 percent.
However, a steady decline in attrition rate amidst global uncertainties is expected to keep margin pressure from mounting. The EBITDA margin is expected to remain at around 24 percent from fiscal 2024 through fiscal 2025.
Moody’s also deemed Infosys’ outlook as stable. “The stable outlook reflects Moody's expectation that Infosys will maintain its robust business model and competitive market position compared with its global peers,” Moody’s noted in its credit rating announcement.
Tata Consultancy Services
The credit research firm also upheld the Baa1 rating of Infosys’ peer TCS, based on its “globally diversified, cost competitive operations that translate into its industry-leading profitability and robust credit profile.”
Moody's expects TCS’ revenues to clinch 8 percent growth for the fiscal year 2023, but water down to around 5 percent for the fiscal years 2024 and 2025.
Coming to profitability, TCS’ EBITDA margin is expected to stay around 25 percent during the down years, supported by steadily declining attrition and improving employee utilisation.
TCS’ largely unleveraged balance sheet and superior liquidity position should help the company return 80 percent to 100 percent of its free cash flow to shareholders.
The outlook for the company was also deemed by Moody’s as stable.
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