Tata Consultancy Services shares closed over 3.5 percent lower on Friday after the company beat street expectations on the net profit and margin front. Infosys ended 8.8 percent lower after the company lagged revenue growth expectations and slashed its guidance for fiscal year 2017.
While dollar revenue growth trends have been volatile for both software services majors, Infosys has reported a higher dollar revenue growth in five of the last nine quarters.
In the last nine quarters, TCS has missed revenue estimates four times while Infosys has missed expectations in three quarters.
Employee attrition at Infosys rose to a 7-month high of 21 percent in the April to June quarter, jumping 370 basis points on a sequential basis. TCS has seen four straight quarters of decline in its attrition rate.
Over the last three years, TCS had consistently traded at a valuation premium to Infosys except for a brief period in financial year 2016 when things started to look good for Infosys. But the tables have turned in favour of TCS again, after Infosys missed revenue estimates in the April - June 2017 and slashed its revenue guidance for fiscal year 2017. The valuation gap between the two IT majors now seems to have widened with a sharp fall in the Infosys share price today.
TCS is now trading at a higher forward PE of 18.15, as compared to Infosys’ forward PE of 16.28.
Management Commentary
One of the highlights of TCS this quarter was the 190 basis point improvement in employee attrition rate over the last quarter.
Infosys revised its constant currency revenue guidance downwards for fiscal year 2017. Chief Executive Officer Vishal Sikka said that although the company sees no specific impact of the Brexit vote currently, they expect to see some uncertainty in the near term.
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