How market-cap of CNX IT stocks moved in last three years

Riken Mehta
Follow me on Twitter @mehtariken

IT stocks have been on a roll for several months now on renewed optimism in the developed economies of US and UK that will lead to more outsourcing of software contracts to Indian IT companies coupled with rupee depreciation. Let's analyse how market-cap of CNX IT companies have moved in last three years.

Infosys market-cap has surged only 7 percent in last three years as company lagged its peers with slower revenue growth, falling margins, higher attrition rate and reluctance to avoid big ticket acquisitions and sticking to old strategies. TCS   market-cap is 115 percent higher compared to Infosys today while the difference was merely 7% in 2011.

TCS topped Infy as IT bellwether and surprised the street every quarter with its consistent strong performance despite weak macro environment in US and UK in 2011 and 2012.

HCL Tech   has emerged as a dark horse in the entire pack trebling its market-cap in last three years. Improved business strategies, strong leadership, acquisition of higher bracket clients and clocked higher EBIT margins over the years.

Infosys current market-cap of Rs 214078 crore is less than TCS market-cap in Jan 2011 (Rs 226656 cr). Infosys has not even managed to cross TCS market-cap (in 2011) in last three years.

TCS current market-cap is more than combined total market-cap of remaining 18 CNX IT stocks (barring Infosys) In 2011, TCS market-cap was 14% higher compared to Infy. Today TCS market-cap is 115% higher compared to Infy.

Infosys market-cap has surged only 7% in last three years. It has underperformed 14 IT stocks in CNX IT index in last three years.

The difference of market-cap between Wipro (3rd largest) and HCL Tech (4th largest) was 74% in 2011. Today the gap between two has narrowed to 32%.

Tech Mahindra 's market-cap was less than that of Mphasis in Jan 2011. Today, Tech Mahindra's market-cap is 5 times that of Mphasis. In 2011, Mphasis was 6th largest company in terms of market-cap and today Tech Mahindra is 5th largest while Mphasis is 7th.

Tech Mahindra’s market-cap was less than combined market-cap of MindTree , Vakrangee , Hexaware, CMC and KPIT . Today Tech Mahindra’s market-cap has nearly doubled the combined market-cap of MindTree, Vakrangee, Hexaware, CMC and KPIT.

Vakrangee’s market-cap has surged from Rs 700 cr in (Jan 2011) to Rs 4700 cr (nearly 600%) in last three years.

In 2011, Vakrangee was not even a part of CNX IT index and today its 10th largest IT stock in terms of market-cap (Top 10 IT stocks).   Only 5 CNX IT stocks out of 20 have posted negative returns in last three years. Core Education has lost 91% of its market-cap in last three years. (From midcap it has become smallcap stock)

CNX IT index at multi-year high; Infosys, TCS, HCL Tech, Wipro at multi-year high

Riken Mehta
Follow me on Twitter @mehtariken 

IT stocks have been one of the biggest wealth creators for investors over the years. CNX IT index, barometer of IT stocks has recorded fresh highs since 2004. The index has gained 211 percent in last nine years while rupee has depreciated 40 percent in the same period. Heavyweights like Infosys, HCL Tech, TCS and Wipro are trading at multi-year highs as strong US economy coupled with weak rupee favours IT stocks.

N Chandrasekaran, CEO and managing director of India's largest IT software company TCS also painted bullish picture for FY15. “FY15 will be a better than FY14 as per the initial talks that we have had with our clients. We expect a good growth overall -- retail, consumer goods and services, utilities, pharma, financial services, etc," N Chandrasekaran told reporters.

 

Is Infosys slowly narrowing valuation gap with TCS?

Riken Mehta
Moneycontrol Bureau 

Follow me on Twitter @mehtariken 

Most IT analysts recommend TCS over Infosys to clients looking to bet on the IT services sector. The bias is evident from the valuation (measured in terms of the trailing 12 month price earning multiple) that investors are willing to pay for TCS as opposed to Infosys. A string of depressing quarterly earnings from Infosys caused the valuation gap to widen by as much as 60 percent at one stage. That gap has been narrowing of late, despite TCS reporting a superior set of quarterly numbers. One of the explanations for this trend could be that the TCS stock is already discounting most of the positives. The earnings upgrades for Infosys post second quarter earnings could be another factor. But it could still be a long road ahead for Infosys before it manages to close the gap altogether.

Infosys margins at all-time low, HCL Technologies' at all-time high

 

 Riken Mehtamoneycontrol.com

The opinion on the street is unanimous for IT sector Infosys  is an underperformer, HCL Technologies  a dark horse and TCS  a consistent outperformer. This has been the view for several quarters now. Infosys’s problems are company specific and clearly the strategy of preserving margins at the cost of revenue growth has backfired.

The EBIDTA margins of Infosys in Q4 slumped to an all-time low of 23.6 percent from 31.07 percent in September 2009, best in the industry at that time. In the same period (Sept 2009 Mar 2013), HCL Tech’s margins improved by 570 basis points to 21.33 percent, close to its all-time high margins of 22.19 percent in the previous quarter.

Infosys has also lost its market share to rivals like HCLTech, TCS and Cognizant. It has been criticized for not utilizing its huge pile of cash reserves for acquisitions compared to HCL Tech and TCS who have acquired several companies in last few years. The margins of Infosys will further contract as the company is now focusing on stepping up revenues but analysts feel it’s a little too late.

Q2FY13 Results: How do Infosys, TCS, HCL Tech's numbers stack up?

Riken Mehta
Moneycontrol.com

As the second quarter earnings season plays out, it is becoming increasingly evident that  Infosys  has a lot of work to do before it can regain its position as bellwether of the IT services sector. Infy's September quarter numbers met market expectations, but the company lowered full year guidance as efforts to revamp the business model is taking time to show results. 

 As if rubbing salt in its wounds, TCS  has come up with yet another set of strong quarterly numbers, which makes it the clear favourite for investors looking to buy frontline IT shares. But TCS can't rest easy either; there is competition from HCL Tech which has been steadily improving its performance over the last few quarters.

HCL Tech's September quarter numbers beat analyst estimates by a comfortable margin. The catalysts for this healthy performance were several deal wins and business growth across its key geographies of US and Europe. 

Here is a look at the key operating numbers of the three companies during the quarter gone by.

The change in the outlook also reflected in the posture of the management of these companies. 
 
Infosys management painted a dull picture by slashing its earnings forecast. On the flip side, TCS management remained optimistic and signalled return of discretionary spending healthy for IT industry. HCL Tech, the fourth largest IT player beats street expectations by topping industry average growth. Vineet Nayar sees significant opportunities in next 6 months. Wipro, third largest IT player is yet to announce its results.

On the operational front, it is crystal clear now that TCS holds the numero uno position with HCL Tech on the second spot. Infosys has slipped to third spot on the podium.

Particulars	TCS	Infosys	HCL Tech
Revenue Growth (USD)
YoY	13.00%	2.90%	11.10%
QoQ	4.60%	2.60%	3.20%
Revenue Growth (INR)
YoY	34.30%	21.70%	31.00%
QoQ	5.10%	2.50%	2.90%
PAT Growth (INR)
YoY	44.00%	24.30%	78.10%
QoQ	7.10%	3.50%	3.60%
Operating margins	26.80%	26.34%	22.20%
Active Clients	1032	715	536
Client addition in Q2FY13	41	39	38
Growth in key business verticals (QoQ)
BFSI	4.70%	0.60%	3.60%
Telecom	5.20%	4.10%
Retail	7.00%	3.90%	10.20%
Employee addition	18654	10420
Attrition rate	10.20%	15%	14%
Currency Average Rate	54.76	54.85	54.69

Infosys vs TCS: How the numbers stack up head-to-head

Tata Consultancy Services  (TCS), the country's largest software exporter, once again came out on top compared to its closest rival Infosys, which disappointed the street with a lower-than-expected quarterly profit and a sharp cut in its full year US dollar revenue guidance.

TCS first quarter net profit rose 38% year-on-year (14.6% sequentially) to Rs 3,280.5 crore, while revenue was also up 38% (up 12% quarter-on-quarter) to Rs 14,869 crore.

Bangalore-based Infosys had reported a lower-than-expected 33% year-on-year (down 1% sequentially) rise in first quarter net profit at Rs 2,289 crore, while revenue was barely in-line at Rs 9,616 crore, up 29% (up 9% quarter-on-quarter).

Infosys  had flagged off some pricing pressures, slower IT spends and currency volatility for its poor performance.

Although TCS said that unprecedented currency volatility continued to be a challenge in the short-term, but global demand for IT services continues to be good.

Here’s a head-to-head comparison of the two IT majors:

Particulars	TCS	Infosys
Revenue Growth (USD)
YoY	13.10%	4.80%
QoQ	3.00%	-1.10%
Revenue Growth (INR)
YoY	37.70%	28.50%
QoQ	12.10%	8.60%
PAT Growth (INR)
YoY	37.40%	32.90%
QoQ	14.60%	-1.20%
Operating margins	27.50%	28.00%
Active Clients	1032	711
Client addition in Q1FY13	29	51
Growth in key business verticals (QoQ)
BFSI	14.10%	-1.10%
Telecom	15.30%	-1.10%
Retail	17.50%	5.80%
Employee addition	13831	9236
Utilisation Rate	72%	67%
Attrition rate	11%	15%
Currency Average Rate	54.5	54.83