InvestorQ : How do you see the Infosys second quarter results and do you expect the stock to outperform TCS in the next few months?
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How do you see the Infosys second quarter results and do you expect the stock to outperform TCS in the next few months?

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Angel dcosta answered.
2 years ago
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In the last couple of days since TCS and Infosys announced their results, there has again been a rush by market analysts to upgrade Infosys and to downgrade the price targets of TCS. This tendency was first seen in the previous quarter and is likely to continue for some time till the valuation gap between the two narrow. Let us quickly look at the results of Infosys and TCS and then take a comparative view.

Infosys reported a 2.2% fall in its net profits to Rs.4019 crore. This is roughly of the profits generated by TCS for the same quarter. The good thing favouring Infosys is that it managed to win 13 large deals totalling $2.8 billion in contract value during the second quarter and this is the client base that actually helps IT companies to increase their revenue per customer rand improve spreads. This represents the largest set of large deals won by Infosys in a single quarter in its entire history. However, Infosys did see some pressure on its retail software franchise.

What appears to have impressed markets was the smarter operations focus of Infosys. For example, the margins improved during the quarter with most of the margin improvement coming from operational parameters and cost optimisation. Infosys got utilisation rates up and also its onsite-mix coming down with more work off-shored to India. Automation has also been a key performance driver in the quarter for Infosys. Infosys also got its act together on the attrition front with attrition reducing from 21.5% to 19.4%.

In contrast, TCS ended up underperforming on the sales growth and profit front. Of course, TCS does not give guidance as a matter of policy but the pressure was visible on its net margins. Most investors and brokers now look at the next few months seeing the valuation gap between Infosys and TCS narrow substantially as Infosys gets its act together after almost 3-4 years of management uncertainty.

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