TCS vs Infosys vs HCL Q2: Which co fared best?

Moneycontrol Bureau

Now that three of India's top-four IT companies have come out with their quarterly earnings, it is time to take stock.

In this review, we do a company-wise analysis, digging into numbers and understanding operational trends to seek insight into what the future may hold.

Has TCS paused for breath after its multi-year superlative run? Will Infosys turn the corner? Does HCL Tech have what it takes to join the duo, along with Wipro, in the Indian Big IT club?

First, the key numbers.

TCS

Of the three, TCS grew the most in both dollar revenue and constant-currency terms, while also putting on a robust show on margins.

However, TCS' revenue growth was lower than analyst estimates. TCS has grown faster than the industry for the past several years. This has led the stock to outperform others, resulting in valuations that imply it has to continue on its strong growth path.

The company suffered a few stumbles in its key insurance vertical as well as in the Latin American market. Its India business too remained weak.

It was a solid quarter but there were no positive surprises, brokerage firm Credit Suisse, which has a target price of Rs 3,100 on the stock, said in its review. The correction in the stock was more a result of "exacting expectations rather than demand weakness", Citi said in a note.

Analysts, however, are unanimous that TCS remains the strongest play on Indian IT. "Given that business momentum remains strong, we expect the IT major to continue to out-perform peers in terms of growth," Karvy said.

TCS had earlier stated FY15 would be better than FY14 in terms of revenue growth. Achieving this, however, now looks a bit difficult, CEO N Chandrasekaran told CNBC-TV18 in an interview.

Infosys

India's second-largest IT services company, Infosys, beat analyst estimates by a handsome margin, indicating a turnaround is under way, after years of subpar growth. Its net profit grew 28.6 percent.

New CEO Vishal Sikka, a former SAP board member who took charge in August, said the company would revive growth through innovation such as automation and artificial intelligence.

Attrition continued to remain uncomfortably higher but as Sikka settles in, analysts are confident he is the right person to drive the company to the next level.

"In our view, Dr Sikka's strategy to some extent does seem similar to 'Infosys 3.0' that was launched over 3 years back, with an increasing focus on products and platforms," Karvy said in a note. "However, we believe given the substantial changes being seen in the global IT landscape, with increasing mainstreaming of newer technologies like cloud computing, big data and analytics, Dr Sikka is focusing on the right areas for investments."

HCL Tech

HCL Tech's top-line growth was below analysts estimates with constant-currency growth not crossing 4 percent for six quarters now, while profits managed to meet expectations thanks to higher other income.

Some analysts have expressed concerns the company has been caught up with its fixation to maintain margins and so is not investing enough in growth. HCL's selling, general and administrative expenses (SG&A) came in at an all-time low of 11.68 percent.

Growth in its key infrastructure management services vertical too slowed down but a Citi note said its analysts were not worried that the company has won large deals in the last quarter.