Financial Comparision

I am a long-term investor hold

V S Fernando

I am a long-term investor holding both Infosys and TCS. Between the two, can you please advise which one offers more value?

V Raghunathan, Trichy, Tamil Nadu.

Infosys Technologies Ltd (Infosys), having preceded TCS to the capital market by over 10 years, carved out a niche for itself well before its peer entered the public domain. However, it is now almost two years since TCS, the largest Indian software company, debuted on the bourses. A comparison between TCS and Infosys - on management, profitability, performance indicators as well as business model - thus becomes important from the investors point of view.

TCS and Infosys took two different routes to stardom. TCS was the visionary product of the reputed Tata business empire, which foresaw tremendous potential for offering IT services at a time when computing was in its infancy. TCS had the support and financial backing of the premier business group in the country during its formative years, which it more than repaid by generating a large amount of cash in the last decade and in the process enabling its promoters to protect or up their stake in other businesses. TCS entered the bourses only when it felt it needed a currency in the form of its listed security to sustain its growth ambitions.

Infosys, on the other hand, was promoted by a little known group of professionals led by Narayana Murthy seeking to make it big but backed by only ambition and drive. Few investors would know that Infosys struggled to make a success of its IPO in February 1993. But soon, the stutter gave way to smooth transition and traction as its growth engine picked up momentum. Infosys not only set the market afire through its stellar financial performance year after year but set new standards in corporate governance as well.

Notwithstanding their distinct routes to success, how do TCS and Infosys compare today, especially from an investors’ perspective?

There is no doubt that, as of now, TCS is the leader of Indian software industry. But the fact remains that Infosys is hot on its trail. While, it took more than three and a half decades for TCS to reach the Rs 11,283 crore turnover mark by fiscal 2006, Infosys has reached a turnover of Rs 9,172 crore in about two and a half decades. Thus, in terms of historical growth rate, Infosys has been decisively faster.

In 1992-93, when Infosys went public, its turnover stood at less than Rs 10 crore. We don’t have a comparable figure of TCS for that year. In 1997, when TCS’ gross revenue stood at Rs 721 crore, Infosys’ was at Rs 139 crore. In other words, nine years ago, Infosys was less than one-fifth the size of TCS. But, by 2006, it is more than four-fifths of TCS’s size. However, a die-hard TCS fan might argue that during the intervening period, the absolute difference in turnover between TCS and Infosys has enlarged in favour of TCS!

In terms of other performance indicators too, there is very little to choose between TCS and Infosys. In terms of distribution, the substantially (80 percent) non-promoter held Infosys has a fabulous record which is unmatched in the Indian corporate history. Whereas TCS offered public a one rupee share for Rs 850, Infosys had priced its Rs 10 paid-up share at Rs 95 when it went public in February 1993. During the 12 years, this Rs 95 investment has fetched more than Rs 3,137 as dividend return alone. The one share of Rs 95 has now become 64 shares (not counting the bonus recently announced) through four bonuses and one stock split. At the current rate of about Rs 3,244 a share, the market value of the investment of Rs 95 amounts to Rs 2,07,616! What’s more, with its Silver Jubilee