TCS vs Infosys: Everyone has a vested interest in technology in the digital era. Upgrading and upskilling oneself digitally is at its peak. So is the investor’s interest in investing in the top IT companies in the country.
When we say top IT company the two big names that come to our mind are Infosys and everyone’s favorite TCS. In this article on TCS vs Infosys, 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$ 227 billion in FY22 from US$ 196 billion in FY21.
Business Overview
Tata Consultancy Services
Tata Consultancy Services is an IT services, consulting, and business solutions organization. A part of the Tata Group, India’s largest multinational business group, TCS has over 600,000 of the world’s best-trained consultants in 46 countries.
It is a part of key indices like NSE, and BSE as well as foreign indices like the MSCI Global Sustainability Index and the FTSE4Good Emerging Index.
The key business verticals for Infosys are financial services, retail, communication, energy & utilities, and the life science and healthcare division. It is the second-largest company in India with a market capitalization of Rs 11,56,863 crores.
Infosys
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 5,09,248 crores.
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Financial Metrics
After understanding their business, we will have a look at the key financial metrics of both companies.
Tcs VS Infosys: Revenue
In FY23, TCS earned a revenue of Rs 225,458 Cr whereas Infosys was able to earn Rs 146,767 Cr. In the last five years, from 2019 to 2023, revenue for Infosys and TCS grew at a CAGR of 16% and 13%, respectively.
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.
| Revenue (Rs in Cr) | |||||
|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| TCS | 146,463 | 156,949 | 164,177 | 191,754 | 225,458 |
| (Revenue growth in %) | 19% | 7.20% | 4.60% | 16.79% | 17.58% |
| Infosys | 82675 | 90791 | 100472 | 121641 | 146,769 |
| (Revenue growth in %) | 17.20% | 9.80% | 10.70% | 21% | 20.66% |
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, the current operating profit margin is 26% as of FY 2023. Whereas, the operating margin for Infosys is reduced by 2 points.
| Margin ratios (Rs in Cr) | |||||
|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Operating Margin (%) | |||||
| TCS | 28.51 | 27.5 | 27.78 | 27.36 | 26 |
| Infosys | 25.45 | 24.42 | 26.69 | 24.91 | 24 |
| Net Profit Margin (%) | |||||
| TCS | 21.55 | 20.67 | 19.83 | 20.05 | 18.76 |
| Infosys | 18.64 | 18.33 | 19.33 | 18.20 | 16.43 |
Tcs VS Infosys: 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 company’s net income.
TCS has a higher payout ratio compared to Infosys in FY23. Apart from that, the dividend yield by TCS in FY23 is 2.8% per share whereas the yield for Infosys is 1.16% per share in the year.
TCS has a good average ROE for the last 3 Years of 43.31% and Infosys has an average of 29.74%.
| Return ratios (Rs in Cr) | |||||
|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Return On Equity (ROE) | |||||
| TCS | 35.18 | 38.44 | 37.52 | 42.99 | 47 |
| Infosys | 23.71 | 25.35 | 25.34 | 29.34 | 32.3 |
| Return On Capital Employed (ROCE) | |||||
| TCS | 44.97 | 46 | 47.21 | 52.91 | 64.44 |
| Infosys | 31.83 | 30.83 | 31.73 | 35.96 | 44.58 |
| Earnings Per Share | |||||
| TCS | 83.05 | 86.19 | 86.71 | 103.62 | 115.19 |
| Infosys | 35.38 | 38.91 | 45.52 | 52.41 | 58.08 |
| Dividend Payout Ratio | |||||
| TCS | 36% | 85% | 43% | 41% | 79% |
| Infosys | 60% | 45% | 59% | 59% | 28.34% |
Tcs VS Infosys: 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 12.8 over 6.83. Generally, companies with lower ratios are preferred as per the industry standard.
| Valuation Parameter (Rs in Cr) | |||||
|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| PE Ratio | |||||
| TCS | 24.10 | 21.19 | 36.65 | 36.09 | 27.84 |
| Infosys | 20.99 | 16.46 | 29.99 | 36.31 | 24.52 |
| Price To Book Value | |||||
| TCS | 8.39 | 8.13 | 13.60 | 15.35 | 12.98 |
| Infosys | 4.96 | 4.15 | 7.61 | 10.62 | 7.93 |
| Price/Sales Ratio | |||||
| TCS | 5.12 | 4.36 | 7.16 | 7.14 | 5.18 |
| Infosys | 3.90 | 2.99 | 5.78 | 6.58 | 3.92 |
Future Prospects Of The Company
TCS: The pandemic has brought enormous opportunities for TCS. The necessity of technological advancements in all fonts has opened up huge opportunities for the conglomerate.
To stay ahead, it has already invested in research and innovation, upskilling its employees, intellectual property, and partnerships. In the March 2021 quarter alone, the company secured 30 deals, making it the leader among its peers.
Infosys: Infosys has transformed into a very client-focused company. It is also focusing on forging partnerships with the world’s top companies. Infosys is also investing in designing and developing the right solutions required for accelerating digital transformation.
Apart from that, to cope with the ongoing pandemic, Infosys has made major changes in its own infrastructure to enable seamless work from home for employees.
The company became carbon neutral in 2020 as a part of its ESG initiative. Infosys, on the other hand, could secure only nine deals in the quarter.
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In Closing
In this article, we looked at the financials of TCS vs Infosys. Both 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 post. Happy investing!
Which company would you invest in? Let us know in the comments below!
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