After the turnaround in demand six quarters ago, TCS - Infosys' closest peer and the country's largest IT player - has reported a faster growth rate. In the two years ended March 2011, which encompass the period of recovery, sales and operating profit of TCS grew by 10% and 16%, respectively, on a compounded basis. The corresponding numbers for Infosys were 8% and 8.1%, respectively. Even smaller peers, including Cognizant and HCL Tech, have been able to take advantage of the rebound in demand to clock better growth.
Questions Over Infy's Strategies
This raises serious questions over the strategies that Infosys embarked upon and the business proposition it employed to cater to the fresh demand that emerged after the subprime crisis. What marked out Infosys from its peers was the way it built an enviable war chest in the form of a humongous cash pile by protecting operating margins.
In contrast, its peers focused on opportunities to invest in organic as well as inorganic growth while settling for lower margins in the near term. While Infosys was operating at margins close to 30%, the profitability of rivals such as TCS and HCL Tech was at 15-25%.
But while doing so, those firms kept investing in augmenting service deliverables, partly on their own coupled with acquisitions. In contrast, Infosys largely focused on organic growth during this period, which has now come to haunt the company. It is now clear that a few strategies employed by some of Infosys' rivals have paid off.
A better focus on banking and finance, or the BFSI, vertical boosted TCS' growth while the acquisition of enterprise applications player Axon boosted fresh client additions for HCL Tech. Infosys, on the other hand reported slower growth in most of its verticals.
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