After a positive start to the earnings season with TCS results last week, the follow-up so far has been good with Infosys and Wipro reporting better than expected results.

Increase in income

Infosys reported revenue of ₹ 25,927 crore and EPS of ₹ 12.25 which was 2-3% above consensus expectations (S&P Capital IQ). Against the backdrop of good underlying momentum for its services, the company also raised the revenue outlook for fiscal year 21 to growth at constant exchange rates (cc) of 4.5 to 5% compared to 2 to 3% at the time. results for the last quarter. The company also increased its operating margin forecast for fiscal year 21 to 24 to 24.5 percent from 23 to 24 percent earlier.

Infosys continues to outperform its peers. Its currency’s steady growth for the December quarter at 5.3% Q / Q (quarter to quarter) and 6.6% year-on-year was better than the growth reported by TCS at 4.1% Q / Q and 0.4% year-on-year. The digital momentum continues unabated, with the segment now accounting for 50% of sales in the three months ended December 20 compared to 40% in the same period last year.

The company has grown in all verticals except manufacturing (9 percent of sales) on an annual basis. BFSI, which is the largest vertical and accounts for just over 30 percent of revenue, experienced good year-over-year growth of 12 percent. Compared to the TCS which saw constant year-over-year currency growth in 3 of its 7 verticals, Infosys reported year-over-year growth in 7 of its 8 sectors. The business has also grown across geographies. Transaction dynamics remain strong with total large deal contract value at an all-time high of $ 7.13 billion in the December quarter compared to $ 3.15 billion in the September quarter.

Solid profits

Wipro reported strong earnings with EPS 16% above consensus estimates (S&P Capital IQ). Revenue was 1% above consensus, driven by better-than-expected IT services revenue (key segment). The good results were driven by a good improvement in the operating margin, which has now reached a peak of 22 quarters. Wipro, over the past few quarters, has shown constant improvement in optimizing its operations and improving its margins from historical levels.

Although the results are viewed positively, compared to Infosys and TCS, Wipro still lags in revenue growth with its constant currency revenue growth for the December quarter at 3.4 percent QoQ and down 2 percent. cent year-over-year. While the company reported sequential growth in verticals, on a year-over-year basis it recorded growth in 2 of 7 verticals.

Overall, the results for the Big Three IT departments confirm a structural trend in demand for digital and cloud services outpacing the decline in legacy services, which will likely maintain revenue momentum over the next several years. However, given that the shares of these companies have rallied over the past year, it remains to be seen if the companies can offer anything more that can justify the current valuations.

Infosys has grown by around 80% in the past year and is now trading at around 27 times FY22 EPS, while its FY21-23 BPA CAGR is likely to be around 12 % (S&P Capital IQ consensus expectations). It trades cheaper than TCS. This has always been the case, although the reduction compared to TCS has decreased in recent years due to its better performance.

Wipro has also grown by around 80% over the past year and is now trading at around 25 times FY22 EPS CAGR, while its FY21-23 BPA CAGR is likely to be around 9%.