TCS vs Infosys: The Indian IT industry is one of the leading destinations in the world for the services sourcing business. In the digital era, everyone has a vested interest in technology. The same is true of investors' interest in investing in the country's leading IT companies.
In this article, we will be doing a comparative analysis of 2 IT Giants- TCS and Infosys. Tata Consultancy Services (TCS) and Infosys have announced their Q3FY22 results on the same day i.e., 12th January 2022. We will take a closer look at the fundamentals of the company. Keep reading to find out!
Industry Overview
The IT industry is one of the most important industries in the country in terms of contribution to the GDP as well as employment generation. In India, the industry accounted for 8% of the GDP in 2020.
Further, this industry is expected to contribute 10% to India’s GDP by 2025. The IT & business service industry’s revenue was estimated at US$ 6.96 billion in the first half of 2021 which was an increase of 6.4% year on year.
Business Overview
Infosys is one of the leading Indian IT services companies offering traditional and digital IT and consulting services.The company's digital services-related capabilities in cloud computing, the internet of things (IoT), big data and analytics, and artificial intelligence (AI) are ranked the best in the industry.
The key business verticals for Infosys are financial services, retail, communication, energy and utilities, and manufacturing. It is the fourth largest company in India with a total market capitalization of Rs 7,30,519 crores.
TCS (Tata Consultancy Services) is a part of the Tata group. It has been offering an IT services, consulting, and business solutions organization. India’s largest multinational business group, TCS has over 488,000 of the world’s best-trained consultants in 46 countries.
The key business verticals for TCS are the same as Infosys, barring manufacturing. The company instead has a life science and healthcare division.It is the second-largest company in India with a market capitalization of Rs 13,90,954 crores.
Infosys vs TCS Business Verticals
| Infosys | TCS | |
|---|---|---|
| Key Business Verticals | Financial services Retail Communication Energy and utilities Manufacturing |
Financial services Retail Communication Manufacturing Life science and healthcare |
| Competitive advantage | Digital services Internet of things (IoT) Big data and analytics Artificial Intelligence (AI) |
Market leader in IT services space Outsourcing Diversified client base |
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.
Financial Metrics
After understanding their business, we will have a look at the key financial metrics of both companies.
Tcs VS Infosys: Revenue
In the last five years (2017-2021), revenue for Infosys and TCS grew at a CAGR of 8% and 7%, respectively.Though Infosys has a higher CAGR, TCS is leading in terms of revenue. The revenue of TCS is 1.72 times that of Infosys.
The revenue growth for Infosys was backed by its technology, energy, and utility business verticals. On the other hand, the revenue growth for TCS was led by the life science and healthcare division of the conglomerate.
Infosys vs TCS Revenue Growth (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Revenue (in m) | |||||
| Infosys | 684,840 | 705,220 | 826,750 | 907,910 | 1,004,720 |
| TCS | 1,179,660 | 1,231,040 | 1,464,630 | 1,569,490 | 1,641,770 |
| Revenue Growth (%) | |||||
| Infosys | 9.70% | 3.00% | 17.20% | 9.80% | 10.70% |
| TCS | 8.60% | 4.40% | 19% | 7.20% | 4.60% |
Tcs VS Infosys: Profitability
The margins of both companies have grown over the last five years. It can be attributed to the consistent revenue and low cost incurred by them. For TCS, their operating margin continued to be industry-leading.
Whereas, the operating margin for Infosys only grew by three points. The net profit margins are in the same range with TCS having a 3-year CARG of 12.17% and Infosys having 9.84%.
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Gross Profit Margin (%) | |||||
| TCS | 30.96 | 29.37 | 29.91 | 29.75 | 30.26 |
| Infosys | 31.66 | 31.48 | 27.88 | 27.61 | 29.94 |
| Operating Margin (%) | |||||
| TCS | 29.28 | 27.73 | 28.51 | 27.5 | 25.9 |
| Infosys | 29.17 | 28.84 | 25.45 | 24.42 | 24.5 |
| Net Profit Margin (%) | |||||
| TCS | 22.34 | 21.02 | 21.55 | 20.67 | 19.83 |
| Infosys | 21 | 22.83 | 18.64 | 18.33 | 19.33 |
How much Are The Investors Earning?
Infosys and TCS have bought back shares worth Rs 304.6 bn and Rs 480 bn from the market in three different transactions in the last five years.
The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company.
Infosys has a higher payout ratio compared to TCS. Apart from that, the total dividend paid by TCS in FY21 was Rs 38 per share whereas Infosys paid a total dividend of Rs 27 per share in the year.
TCS has a good average ROE for the last 3 Years of 37.44% and Infosys has an average of 25.65%.
The stocks have given an average return over the last year. The share price of Infosys surged by 30.87% and that of TCS was by 17.66%.
Infosys vs TCS Return on Equity (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Infosys | 20.80% | 24.70% | 23.70% | 25.20% | 25.20% |
| TCS | 29.80% | 29.60% | 34.40% | 37.50% | 37.70% |
Infosys vs TCS : Return On Capital Employed (ROCE) (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Infosys | 30.57 | 30.38 | 32.4 | 34.01 | 37.83 |
| TCS | 43.94 | 39.84 | 47.8 | 50.02 | 52.56 |
Infosys vs TCS : Earnings Per Share (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Infosys | 62.73 | 73.66 | 35.53 | 39.14 | 45.55 |
| TCS | 133.45 | 135.21 | 83.93 | 86.24 | 87.65 |
Infosys vs TCS Dividend Payout Ratio (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| Infosys | 44.60% | 63.30% | 62.60% | 45.30% | 59.70% |
| TCS | 37.50% | 38.60% | 36.60% | 85.90% | 42.60% |
How Does The Valuation Of The Company Look?
The sectoral P/E for the IT industry is 40.66. For the companies in comparison, TCS and Infosys have P/E ratios of 36.25 and 30.03, respectively.
The price to book value of TCS is higher than Infosys with a value of 13.73 over 7.65. Generally, companies with lower ratios are preferred as per the industry standard.
Infosys vs TCS Valuation Parameter (2016-2021)
Infosys vs TCS PE Ratio (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| TCS | 18.22 | 21.07 | 23.84 | 21.14 | 36.25 |
| Infosys | 16.27 | 15.4 | 20.89 | 16.36 | 30.3 |
Infosys vs TCS Price To Book Value (2016-2021)
| 2016-2017 | 2017-2018 | 2018-2019 | 2019-2020 | 2020-2021 | |
|---|---|---|---|---|---|
| TCS | 5.59 | 6.39 | 8.4 | 8.2 | 13.73 |
| Infosys | 3.39 | 15.4 | 20.89 | 16.36 | 30.3 |
Conclusion
In this article, we looked at the financials of TCS vs Infosys. Both the companies are giving neck-to-neck competition with each other in terms of revenue, growth, and profitability.
The future leadership will be decided based on what strategies they choose to move forward. That’s all for this article.
Happy investing!