TCS has upper hand with deal wins, lower attrition in FY23 vs Infosys
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Even as the country’s top two IT firms sounded confident about the deal environment and tech spends despite inflation, high attrition and geopolitical tensions, experts and analysts told ET that while Infosys has soared during the pandemic in terms of growth, TCS may outstrip its Bengaluru-based rival’s performance in the current year due to large deal wins and relatively easier situation in terms of employee attrition.
“It is very clear that TCS is on its greatest upswing in growth in its history, especially with some significant client wins,” said Phil Fersht, founder and chief executive officer of HFS Research, told ET. He however added that the past quarter has been “too fraught with uncertainty” to read too much into both TCS and Infosys’ performance.
Analysts pointed out that the metric that works in TCS’s favour includes that it clocked its highest-ever order book at $11.3 billion in terms of total contract value in the just ended quarter and the metric stood at $34.6 billion for the full year. The fourth quarter total contract value also includes two large deals in the range of $1 billion.
In comparison, Infosys’ large deals stood at $2.3 billion in the fourth quarter and $9.5 billion in FY22. To be sure, Infosys only discloses ‘large deals’ which are over $50 million in size.
“Infosys is growing significantly faster than TCS however, they did decelerate modestly and at least some of this looks to have been due to a client contract provision. While Infosys still sees a good pipeline of large deals, its large-deal TCV in FY22 at $9.5 billion was 33% lower than FY21 due to lack of mega-deal signings,” said Peter Bendor-Samuel, chief executive officer of IT analyst and advisory firm Everest Group.
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In contrast, TCS signed two mega deals in March quarter itself and Accenture has won a significantly higher number of $100 million+ deals (94 in FY22 versus 62 in FY21).
“Looking forward, we expect to see the industry continue its strong growth with both TCS and Infosys posting strong numbers,” he added.
Attrition bites
Analysts say Infosys’ alarmingly high attrition rate could also impact margins and spill over to delivery capabilities as it needs to execute the projects with freshers.
“Infosys may face supply-side constraints because of high attrition and lower utilisation levels which restricts revenue growth momentum going ahead. TCS is more stable in terms of margin as compared to Infosys and it only reflects better execution of deals,” said Omkar Tanksale, equity research analyst at Axis Securities to ET. “At least, at the moment, TCS has a clear edge over Infosys.”
This comes as Infosys is also battling the industry wide challenge of attrition with exits for the quarter rising to 27.7% compared with 25.5% in the December quarter. The metric stood much lower at 17.4% compared with 15.3% on a sequential basis for TCS despite having a higher employee base. Its headcount stood at 592,195 versus 3,14,015 for Infosys.
“Attrition for the year is higher but in the March quarter it has stabilised and is down by 5% sequentially both in percentage and absolute headcount,” said Infosys’ Chief Financial Officer Nilanjan Roy, adding that “as freshers feed into the system, you will start seeing benefits to the hiring market. Over a period of six months, you will see a moderation of this situation.”
A report by Motilal Oswal Securities said that the brokerage firm feels that the Infosys will deliver margin on the higher side of its guidance band, with strong growth and reduced dependence on sub-contractors as attrition. “We also expect Infosys to be a key beneficiary of an acceleration in IT spends (by clients),” the report said.
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