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TCS and HCL Tech set to maintain lead over Infosys in FY14

These numbers also show that Infosys added new revenue at a poor margin of 2.2%, compared with 25% for TCS and a whopping 46.4% for HCL Technologies. What appears to have created a drift in the performance of these players is their strategy in relation to infrastructure management services.

HCL Tech has been aggressively focusing on this service line for the past few years. While the growth in traditional IT applications and development services has been tepid, infrastructure management services have grown at a faster clip.

HCL Technologies earned over 30% of revenue from infrastructure related services in the March 2013 quarter, compared with 24% a year ago. The division has delivered 8-10% sequential growth over the past few quarters. On the other hand, traditional software services grew just over 1%.

TCS has also increased the share of revenue from the infrastructure segment to 12% in FY13 from 9.4% two years ago. Its revenue grew by a strong 47% in FY13, compared with a growth of 23% in applications development and maintenance services.

Infosys, in contrast, earns just over 7% of its revenues from infrastructure related services, while IT applications and maintenance constitute 38% of its top line. The flip side of increasing exposure to infrastructure services, however, is lower margins. For HCL Tech, the margin gap is about 200 basis points between infrastructure and software services.

In FY14, TCS and HCL Tech are likely to retain their lead over Infosys. Stronger project pipelines and better project ramping up will be the key differential.