BENGALURU: Infosys is likely to grow faster than larger rival TCS this fiscal year, analysts said, on the back of its acquisitions and competitive pricing strategy. Over the past two years, the software services provider has been investing in an aggressive sales and marketing team and to attract digital- tech-focused deals.
The company decided to build long-term relationships with strategic clients, including telecom major Verizon and hired deal directors to chase large deals. This has given Infosys an edge over TCS, they said.
“This year (financial year 2019-20) Infosys will grow faster than TCS. While TCS is likely to see 8-8.5% growth in constant currency terms, Infosys should grow over 9% on an organic basis, excluding Stater,” said Kuldeep Koul, lead IT analyst at ICICI Securities.
In May, Infosys acquired a 75% stake in Stater, a unit of ABM AMRO that offers end-to-end mortgage administration services to customers in the Benelux (Belgium, the Netherlands and Luxembourg) region. The company, which saw slowpaced growth in the initial few quarters after Salil Parekh took over as chief executive in January 2018, reported higher growth than TCS in the July-September quarter.
Analysts said Parekh’s bets in changing the company’s growth trajectory have started paying off. In the first half of FY20, Infosys reported 10.2% growth in topline to $6,341 million. Even if the second half has some seasonal growth challenges, for the whole year Infosys is expected to grow faster, said analysts. Infosys under Parekh decided to double down on sales and marketing and improve its employee profile. It also created innovative deal structures for strategic clients like Verizon and ABN AMRO and sharpened focus on automation which has helped Infosys become more competitive and participate more aggressively in large deals, said Koul of ICICI Securities.
For instance, Infosys’ contract with Verizon “was to create some sort of structure like employee rebadging where initial revenue may be less but building a long-term relationship with a client who will spend considerably on technology over a period of time,” Koul said.
Infosys’ large deal wins are on track and it has shown better operations, even as it is done with large investments for now, said Apurva Prasad, IT analyst at HDFC Securities.
“Infosys is expected to clock 1.2 times higher growth than TCS this fiscal,” said Prasad.
The company’s “deal pipeline is pretty strong, but it has some scope for improving utilisation,” he added.
TCS, on the other hand, is chasing higher margins and has certain cyclical client-specific issues.
“They have large numbers to work with. They have 26-28% margin aspirations. In the past four years, they had lower than 26% aspirations. At times, you may not chase deals which will keep you away from this margin aspiration,” said another Mumbai-based analyst, who did not want to be quoted.
Infosys and TCS declined to comment citing the silent period before their quarterly results next month.
“Infosys has sharpened focus to increase its share within large accounts, supported by hiring of deal directors, and increased engagement with deal advisors or consultants. Its partnership with Temasek and with Hitachi, Panasonic, Pasona in Japan are creating larger deal opportunities for the firm in Apac region,” wrote Prasad in a report.
Source: Economic Times