Moody's Affirms Ratings Of TCS, Infosys With Stable Outlook

Moody's expects Infosys' revenues to climb by around 13 per cent for the financial year ending March 31, 2023, but moderate to around 8 per cent in the next 2024 fiscal

Moody's expects TCS' revenues to climb by around 8 per cent for the fiscal year ending March 31, 2023

Source : Getty

Moody's Investors Service on Wednesday affirmed the ratings of two major Indian IT services companies, Tata Consultancy Services Limited (TCS) and Infosys.

In two separate statements, Moody's also retained stable outlook for both the companies.

Moody's expects Infosys' revenues to climb by around 13 per cent for the financial year ending March 31, 2023, but moderate to around 8 per cent in the next 2024 fiscal.

"Moody's Investors Service has today affirmed the Baa1 local currency issuer rating of Infosys Limited. The rating outlook remains stable," it said in a release.

The rating affirmation reflects Infosys' position as one of the world's leading information technology (IT) solutions and services providers with globally diversifed, cost-competitive operations that translate into its sustained, strong proftability and robust credit profile, Kaustubh Chaubal, Moody's Senior Vice President said.

"Infosys' good corporate governance practices, reflected in its extremely strong balance sheet, large liquidity and net cash position, support its Baa1 rating," Chaubal said.

A vast majority of Infosys' workforce is based in India. As well, the company is exposed to changes in regulations and tax laws in India. Given this exposure, Infosys' rating is constrained at two notches above the rating of its country of domicile and incorporation, India (Baa3 stable), based on Moody's cross-sector methodology.

Moody's observed that a globally diversifed operations, demonstrated track record in delivering strong operating results with industry leading proftability, large positive free cash fow generation and minimal reliance on the Indian banking system allow Infosys to be rated two-notches higher than the Indian sovereign.

Moreover, Moody's said, the company's credit profile is strong for its Baa1 rating, given its long, successful and sustainable operational track record with gross debt/EBITDA below 0.3x and large free cash flow generation.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation and is a measure of company's operating performance.

Revenue growth prospects for IT companies could slow as corporates remain cautious with their discretionary IT budget allocations amid global uncertainties and fears of a looming recession.

But digital transformation trends, along with corporates' focus on cost optimisation and streamlining vendors, present an attractive opportunity for leading IT companies such as Infosys that have a wide product suite and capabilities to cater to increasingly complex businesses.

Moody's expects Infosys' revenues to rise by around 13 per cent for the fiscal year ending March 31, 2023 (fiscal 2023), but for growth to moderate to around 8 per cent in fiscal 2024.

"Meanwhile, improving employee utilisation from hiring in prior years and steadily declining attrition amid global uncertainties will likely arrest any further margin pressure, with its EBITA margin remaining around 24 per cent over fiscal years 2024 and 2025," it said.

On rating rationale for TCS, Moody's Chaubal said the company's good corporate governance practices, refected in its extremely strong balance sheet, large liquidity and net cash position, are a key credit strength supporting its `Baa1' rating.

Moody's expects TCS' revenues to climb by around 8 per cent for the fiscal year ending March 31, 2023 (fiscal 2023), but for growth to slow to around 5 per cent in fiscal years 2024 and 2025. Meanwhile, improving employee utilisation from hiring in prior years and declining attrition in the backdrop of global uncertainties will likely arrest any further margin pressure, with its EBITA margin remaining around 25 per cent over fiscal years 2024 and 2025. 

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