ET Intelligence Group: The December 2019 quarter performance of the top information technology (IT) companies reveals that the impact of slowing revenue from the banking, financial services and insurance (BFSI) segment is more prominent for Tata Consultancy Services (TCS) compared with the peers, including Infosys and HCL Technologies. This is expected to shrink the valuation premium that the stock of TCS enjoys over peers in the near term.
Infosys and HCL Tech registered better growth in the first nine months of FY20 despite weakness in verticals, including BFSI and retail.
The revenue of TCS, the country’s largest software exporter, grew by 6.9 per cent year-on-year to $16,588 million during the period while Infosys posted 9.7 per cent growth in the top line at $8,739 million. For HCL Tech, revenue shot up by 16.3 per cent to $7,392.6 million helped by revenue from acquired businesses. Wipro, the fourth largest IT company, reported the slowest growth of 1.1 per cent in revenue at $6,182.5 million.
Dwindling growth in financial services and capital market segments in the major markets of the US and Europe has been a concern for Indian IT companies. The BFSI vertical contributed 30.9 per cent, 31.5 per cent, and 21.6 per cent to the revenue of TCS, Infosys, and HCL Tech, respectively. Given the management commentaries for the December quarter, the BFSI vertical is expected to show sluggishness in the near term.
This will continue to impact TCS more since it generates over 46 per cent revenue from BFSI and retail, which grew in single digits at over 5 per cent year-on-year in the December quarter. Hence, they dragged the overall growth even though verticals, including communications, life sciences and manufacturing, which together contributed over 24 per cent to the top line, grew by more than 9 per cent each. For Infosys and HCL Tech, the faster growing verticals contributed more to the revenue than BFSI, thereby improving the overall revenue growth.
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TCS also reported an escalated employee attrition at 12.2 per cent in the December quarter compared with 11.6 per cent in the previous quarter. While its headcount dropped by 4,063 sequentially to 4.5 lakh employees, the management attributed this to the uneven hiring trend for the current fiscal wherein the first two quarters reported higher recruitment.
