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Infosys and TCS: Forecasting to 2027 and Anticipating Upcoming Earnings

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Tata Consultancy Services and Infosys are scheduled to release their latest quarterly earnings results this week. To access our analysis on each company, as well as analysis on market competitors, as soon as it becomes available, start your free trial today.

Expectation for 2022-2027: Around 6% CAGR

Last quarter, TBR forecast revenues for these two India-centric IT services vendors out to 2027 and anticipated both would stay in the midsingle-digit range. Illustrating the size gap between the pair, Infosys’ best-case scenario would put the company at just over $31 billion in 2027, while TCS’ worst-case scenario would be around that same size of $31 billion. Over the same time period, TBR forecasts Accenture will grow at a slightly slower rate than TCS, bringing Accenture to nearly $83 billion by 2027.

 

For further context around our analysis of TCS’ and Infosys’ earnings, let’s look at our expectations and the best-case scenarios:

 

  • TBR expects TCS will grow at a 5.89% CAGR from 2022 through 2027 to reach $36.5 billion in annual revenue, with a projected range between the lower and upper confidence intervals (CIs), all things being equal, of $31.5 billion to $40.8 billion.

 

  • Best-case scenario: TCS’ fast-follower strategy works for TCS to stay relevant in the market and capitalize on in-demand areas, but reaching the upper limit of our confidence interval would be a stretch for the company as it would require a departure from its linear headcount-to-revenue-growth relationship, deeper penetration around high-value offerings such as consulting, and/or sizable acquisitions. All of these would necessitate taking on more risk than the company has traditionally.

 

  • TBR expects Infosys will likely grow at a 6.96% CAGR from 2022 through 2027 to reach $25.1 billion in annual revenue, with the range between the lower and upper CIs, all things being equal, projected to be between $22.6 billion and $31 billion. This is an update to the previously modeled CAGR of 7.23% through 2027 as we account for material changes to the environment Infosys must operate in. Additionally, the buyer decision cycle is increasing in length, and Infosys’ focus on managed services will pressure the company’s revenue realization cycle. Avoiding distractions caused by market noise around new managed services providers that could pressure Infosys’ performance will be key to the company meeting its revenue goal.

 

  • Best-case scenario: Reaching $31 billion in revenue by 2027 appears to be a tall order for Infosys, as this would require the company to more than double its revenue from 2021, when annual sales were $15.6 billion. Infosys has two potential paths to reach such scale. First, the company could pursue a large-scale bolt-on acquisition but only after optimizing its existing portfolio and divesting legacy assets that are likely to get commoditized due to generative AI (GenAI). Offloading Infosys’ BPM unit could be an option. Second, Infosys could win several megadeals similar in size to the Daimler contract, which was worth north of $3 billion. In 2Q23 Infosys signed a $1.5 billion deal with BP as well as a $2 billion deal with an existing client where Infosys will provide AI-enabled and automation-based modernization and maintenance services, paving the way for the company to reach $31 billion in annual sales despite facing macro headwinds.

 

TBR’s analysis of both companies last quarter highlighted talent management strategies, an area we will watch closely during the earnings releases this week and over the course of the quarter.

 

  • Maintaining a skilled, scaled and agile talent base remains critical for TCS’ value proposition and success in the market. Year to date, the company has trained 103,000 employees in high-demand competencies. TCS continues to focus on gaining new certifications in high-growth areas, particularly cloud platforms, and has demonstrated its ability to invest in areas it sees as key to long-term growth, more recently unveiling commitments to skilling employees in GenAI.

 

  • Developing digitally versed talent and using an integrated sales approach enable Infosys to target opportunities across core and new business areas. The company is investing in talent initiatives largely enabled by Infosys Springboard and its collaboration with various universities and businesses seeking to reskill their staff. This approach helps Infosys build a name for itself, which can then help the company recruit freshers and industry laterals. Infosys partnered with Adobe and aims to create over 10,000 new Adobe-certified experts globally by 2025. Infosys will also use Infosys Springboard to offer free courses for data scientists supporting the company’s broader GenAI push.