Peer Performance
In spite of the robust Q3 earnings, Infosys is still lagging behind its strongest Indian competitor, Tata Consultancy Services, in many aspects, like Client addition in higher revenue brackets. This area slowed down for Infosys in the past years, whereas TCS added two more $100 million clients, taking the total to 16. TCS’ revenue, in dollar terms, rose 3.3% quarter over quarter in comparison with a 6.3% rise at Infosys. Employee count of Infosys -155,629- is also lower than TCS-243,545. In addition to this, attrition rate of employees is also high in the case of Infosys-7,045 (average of the last four quarters). TCS also enjoyed a robust Q3 FY13, reporting a 23% rise in quarterly profit, driven by strong demand for outsourcing services and stable fees. It added 35 new clients during the quarter. I believe that the company will continue to give better results because of the sustained efforts from all operating teams to focus on growth with profitability in the long run. If you are an investor looking for a position in TCS, you can invest in EGShares Technology GEMS ETF. TCS represents a substantial portion of this fund.
Another industry player, Cognizant, reported strong Q3 earnings. Its net income rose by 22% because of the broad-based revenue growth across its services and geographies. Revenue from North America, Europe, and the rest of the world also rose and positioned the company nicely for long term growth for its investors. The company has signed a few large deals in the last quarter. With Horizon 3, the company is continuously developing offerings in 3 arenas – new technologies, new delivery models, and new markets. Cognizant is expanding its ITIS capability through the creation of a data center cloud services organization, which will offer private and multitenant cloud offerings. Both Infosys and TCS are in the race to bridge the revenue growth rate gap, which in my opinion will surely hinder growth prospects of the company in the years to come. What I like about Cognizant is that it has zero debt on its balance sheet and has accumulated $2.6 billion in cash. While Infosys has seen a significant shuffle in its top management due to the growth concerns, Cognizant has excellent management, which has been leading the company for a long time. Its deeper engagement with its clients is a big threat for its peers to sustain their market shares.
Conclusion
Seeing the growth momentum driven by improving the large deals, strong addition of clients and flexibility to deal structuring, I am highly inclined towards an investment in Infosys, followed by TCS. Additionally, Infosys had reported cash and equivalents of Rs. 15 billion (US $2.7 billion), which it can use in its future financial activities. I see huge potential growth in Infosys, as it is focused on acquiring new clients in new industries, which will further boost its market share.
The article This Sleeping IT Stock is Back on Track originally appeared on Fool.com and is written by Ranu D.
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