TCS surges on strong Q4FY19 while Infosys tanks on weak guidance

India’s two largest IT service providers TCS and Infosys reported their last quarter numbers for FY19 on Friday. TCS reported good set of numbers with revenue for Q4FY19 increasing 2.4 per cent and 13 per cent yoy to Rs. 38,010 crore on constant currency basis. Its digital revenue grew nearly 46.4 per cent yoy and comprised around 31 per cent of the revenue. TCS’s operating margin in the quarter was at 25.1 per cent. Net profit for the quarter stood at Rs. 8,126 crore, up by 17.7 per cent yoy. The company recommended final dividend of Rs 18 per share.

TCS’s management indicated that it will continue the growth trajectory in FY20E, despite macro challenges in the industry. In FY19, the company reported robust performance on the back of huge deals won in the previous year. The management is confident of registering strong performance in the FY20E owing to strong deals worth USD 22 billion won in FY19. In terms of margin, the management aims to maintain it in the range of 26-28 per cent.

In response to the strong results, the stock of TCS closed at Rs 2106.15, up by 4.59 per cent, making an intra-day high of Rs. 2115 on the BSE.

On the other hand, India’s second largest IT service provider Infosys reported poor set of numbers in Q4FY19. Its revenues remained muted at Rs. 21,539 crore on QoQ basis. Also, the constant currency revenue increased by 2.1 per cent on QoQ basis. The net profit increased by 12.9 per cent QoQ at Rs 4074 crore.

The management of Infosys provided weak guidance for FY20E. It gave constant currency revenue growth guidance of 7.5-9.5 per cent as against 9 per cent revenue growth in FY19. The management seems to be concerned about the manufacturing vertical in Europe and healthcare vertical. Further, digital business (33.8 per cent of its total revenue) is expected to continue its sustainable growth momentum. In terms of margin, the management lowered its operating margin guidance to 21-23 per cent for FY20E as against 22-24 per cent for FY19. In Q1FY20E the margin would be under pressure owing to wage revision.

On the back of lower guidance for FY20E, the stock of Infosys closed at Rs 727.50, down by 2.72 per cent, making an intra-day low of Rs. 713.70 on the BSE.