TCS beats tradition, edges past Infosys in margin play

Tata Consultancy Services (TCS), the country’s largest IT services exporter, has overtaken its nearest rival Infosys on the operating margins front probably for the very first time, albeit marginally. For the second quarter, TCS reported an operating margin (OPM) of 26.8% as compared with 26.3% registered by Infosys during the same period.

Infosys has traditionally enjoyed superior operating margins when compared to other Indian IT vendors. However, TCS in the last couple of years has been able to consistently deliver better margin performance thereby narrowing the gap with Infosys.

This improvement by the Mumbai headquartered firm has a lot to do with driving internal efficiencies within the company in terms of utilisation and also deploying a lower employee wage base.

Infosys has always championed high margin play, never willing to sacrifice it even if that meant gaining better volumes.

At the end of second quarter, the total employee base of TCS stood at 254,076 with an overall attrition rate of 11.4%. The utilisation level of the company has also reached a high of 81.6%. Infosys recorded a utilisation rate of 73.3%, with an attrition of 15% in Q2.

TCS CFO S Mahalingam said, ?We will continue to focus on maintaining our strategy of profitable growth to maintain margins to ensure we can invest on an ongoing basis as technology adoption cycles continue to get shorter.?

Infosys CEO SD Shibulal told FE last week that the lower Q2 margins was only a temporary blip, which the company can tide over.

TCS’S better margin performance comes at a time when its revenue has touched R15,620 crore for the quarter, widening its revenue gap with Infosys to R5,762 crore.

However, on a quarter-on-quarter (QoQ) basis, TCS has actually witnessed a decline in its operating margins (OPM) by 70 basis points.

At the end of first quarter, the OPM was 27.5%. Dipen Shah, IT analyst with Kotak Securities, said investments in employees and projects should lead to sustained growth in the future for TCS though it has had an impact on margins in Q2.