Tata Consultancy Services, India?s leading IT services exporter, continues to widen the gap with its nearest competitor Infosys with the operating margins of the company rising by another 3% during the September quarter, while the NR Narayana Murthy-led firm remained steady during the period.
TCS on Tuesday announced its second quarter results for FY14 fiscal and reported an operating margin of 30.2%, which was a 3% increase from the previous quarter. In the case of Infosys, the operating margin for the same period was flat at 23.5%, even without including the provision of R219 crore for visa related matters.
A year ago, the operating margins between the two companies were almost similar. For the second quarter of 2012-13 fiscal, TCS reported an operating margin of 26.8%, compared with 26.3% registered by Infosys.
The growing difference between the top two IT majors in terms of operating margins is a commentary on the respective companies? strategy and execution ability, according to industry watchers. It is very unlikely that there would be any significant improvement in Infosys margins during the fiscal as company officials said this financial year would be a year of making investments.
Infosys, though with a lower revenue base when compared with TCS, has always enjoyed superior operating margins traditionally.
However, TCS in the last couple of years, has been able to consistently deliver higher margin performance and also significantly narrowed the gap with Infosys. This improvement by the Tata group company has lot to do with driving internal efficiencies within the company in terms of utilisation and also deploying a better mix in terms of employee matrix.
The current operating margins of TCS is now almost reaching that of Infosys during its heydays when it boasted of 30% margins and above. TCS has also reported stronger volume growth during the period. At the end of the second quarter, it reported a volume growth of 7.1% while for Infosys it was 3.1%. This also reflects the ability of the Tata Group company to enter into longer term sustainable contracts with its customer base.
TCS, at the end of the quarter has an employee strength of 285,250 with the utilisation rate being 83.4%, which provides a major boost for the operating margin for any IT firm. In comparison, Infosys? utilisation rate is 73.7%, though it has expressed its intention of reaching the level of 82-83% by the end of this fiscal.
TCS CFO Rajesh Gopinathan said, ?Strong volumes, currency tailwinds and firm execution helped us post industry-leading operating margins in this quarter.?