Infosys Shares Go Down On Q4, TCS Shares Go Up

IT giant Infosys has reported a mixed data in the fourth quarter with margins below expectations even as revenue came in- line. The company also reported wins over strong large deal during the quarter which came in more than $1.5 billion. 

Infosys’ guidance for this fiscal starting April 1, 2019, came in below the Street’s estimates. Infosys shares fell as much as 5% in early trade to ₹713. 

Infosys’ bigger rival TCS, which also reported Q4 earnings on Friday, jumped as much as 3.5% to ₹2,085.60.

Coming back to Infosys’ fourth quarter numbers, the company reported strong 2.1% sequential rise in constant- currency revenue, underscoring strong execution and strong order inflows. This is the second successive quarter where Infosys has achieved more than 10% growth year-on-year in constant currency. The Bengaluru-based company said it signed large deals of $1.57 billion during the quarter, taking the cumulative size of deals won to $6.28 billion for the full year. This is twice that of FY18.

In this context, many analysts say that the growth momentum, which picked up in FY19 will continue in FY20. So, they view Infosys’ guidance of 7.5-9.5% growth in constant currency terms as conservative.

“We believe the IT major is being conservative in terms of its revenue guidance for FY19, which is slightly below what we were expecting (8-10%),” Reliance Securities said in a note.

Ravi Menon, lead analyst for IT at Elara Capital, said that Infosys growth guidance for FY20 was “disappointing” given large deal wins in FY19.

In terms of profitability, Infosys operating margin in the March quarter dropped 3.2 percentage points from a year ago, to 21.5%, led by wage hike impact and possibly costs related to large deal integration. This was below the Street’s estimates. The company also expects margins to remain suppressed in FY20 as well, guiding for in a range of 21-23%.

Analysts also remained concern over rising attrition, which was above 20% in March quarter. “Attrition remains a bug-bear. This is an area that Infosys needs to focus given major digital talent shortage and attendant margin pressure due to wage cost inflation,” Reliance Securities said in a note.

Tata Consultancy Services Ltd (TCS), India’s largest IT services company by revenue, ended fiscal 2019 with double-digit revenue growth as the company reported a 11.4% growth in constant currency terms in the fiscal ending 31 March, the company said in a statement. For the March quarter, TCS reported a revenue growth of 2.4% from the preceding three months in constant currency terms. Revenue grew 12.7% from the same period a year ago.

This is TCS’ fifth straight quarter of year-on-year double-digit revenue growth in constant currency terms.

In terms of deal wins, TCS also did well, bagging contracts of $6.2 billion last quarter, higher than the $5.9 billion of deals it secured in the December quarter.

The rising cost of business also hit TCS’ profitability. Its operating margin contracted for the second straight quarter. It softened 30 basis points from a year ago to 25.1% in the fourth quarter of FY19.

Ravi Menon of Elara Capital said that TCS growth in March quarter was broad-based and he expects to the Mumbai-based company to post higher growth than what it had posted in FY19. “TCS deserves higher multiple and the premium vis-a-vis Infosys is expected to widen in TCS’ favour,” he added.

At 9:51 am, Infosys shares had pared some losses, trading 2.5% lower at ₹728 while TCS shares were 2.2% higher at ₹2,059. In comparison, Sensex was trading 0.20% higher.

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