India?s largest IT services exporter TCS once again beat closest rival Infosys in volume growth in the quarter ended September 2011, continuing its consistent show for over a year now. The firm reported sequential volume growth of 6.25%, compared to Infosys? 4.5%.
TCS? operating margins, meanwhile, came in lower at 27.1% versus Infosys? 28.1%. TCS has been shrinking its margin difference with industry leader Infosys, benefiting from the outperformance in volume growth over the past many quarters.
Most analysts, however, had factored in a volume outperformance by TCS this year considering its larger exposure to the banking, financial services and insurance (BFSI) vertical compared to Infosys ? volumes have remained strong in the sector even with macroeconomic uncertainty and large layoffs in the US banking world. In the four quarters to March 2011, TCS grew it volumes 7% compared to Infosys that could grow only 3.2%.
Market watchers, nevertheless, appeared happy with Infosys? volume growth in the second quarter and said they were hopeful the firm would catch up with TCS in FY13. In a report, brokerage firm Motilal Oswal said that narrowing differential in growth rates versus TCS will be visible over the next two quarters.
?Infosys grew its telecom vertical after three successive quarters of declines. Excluding revenue declines from a large telco client, Infosys? growth is not very different from TCS,? the firm said.
Dipen Shah of Kotak Securites said that Infosys may be playing catch up but it is still too early to judge going by one quarter?s results. ?We will have to wait and watch for at least another quarter. However, we were happy with the volume growth reported by Infosys. We expected 4% and they delivered 4.5%,? he said.
Sanjeev Hota of Sharekhan said that while Infosys will continue to lag TCS in volume growth this year, it may continue its present rate of volume growth for the rest of FY 12.
?Infosys? guidance assumes 4% volume growth even in the next two quarters, traditionally slow quarters for the industry. But TCS will benefit from its larger exposure to BFSI where volume growth remains strong,? he said.
TCS had substantially increased its topline lead with Infosys in FY11. TCS? revenue lead stood at R9,824 crore ? in FY07, the difference between the two was only R4,792.
Infosys has always held that the quality of its margins were far superior to that any other company. chief financial officer and board member V Balakrishnan told FE, ?Our accounting policies are much more stringent than any other company in this country. Our depreciation policies are very aggressive. If you look at the quality of profits, it is much more superior. If you normalise that, even now you will see 3-4% difference.?