Moody's affirms stable outlook for TCS, Infosys

Singapore, February 16 : Moody's Investors Service has affirmed the Baa1 local currency issuer rating of Tata Consultancy Services Ltd (TCS) and Infosys.
The rating outlook on both IT firms remains stable.
"The rating affirmation reflects TCS' position as India's largest and one of the world's leading information technology (IT) solutions and services provider with globally diversified, cost-competitive operations that translate into its industry-leading profitability and robust credit profile," says Kaustubh Chaubal, a Moody's Senior Vice-President.
Chaubal said TCS's good corporate governance practices, reflected in its extremely strong balance sheet, large liquidity and net cash position, were a key credit strength supporting its Baa1 rating. Chaubal is also Moody's lead analyst for TCS.
A vast majority of TCS' workforce is based in India. As well, the company is exposed to changes in regulations and tax laws in India. Given this exposure, Moody's said TCS' 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 -- Assessing the Impact of Sovereign Credit Quality on Other Ratings.
Globally diversified operations, a demonstrated track record in delivering strong operating results with industry-leading profitability, large positive free cashflow generation and minimal reliance on the Indian banking system allow TCS to be rated two-notches higher than the Indian sovereign, according to Moody's. Moreover, the company's credit profile is strong for its Baa1 rating, given its long, successful and sustainable operational track record with gross debt (Ebitda) well below 0.2x and large free cash flow generation.
The stable outlook reflects Moody's expectation that Infosys will maintain its robust business model and competitive market position compared with its global peers.
"The rating affirmation reflects Infosys' position as one of the world's leading information technology (IT) solutions and services providers with globally diversified, cost-competitive operations that translate into its sustained, strong profitability and robust credit profile," says Kaustubh Chaubal, a Moody's Senior Vice President.
Kaustubh Chaubal said Infosys' good corporate governance practices, reflected in its extremely strong balance sheet, large liquidity and net cash position, support its Baa1 rating.
Moody's said it expects Infosys' revenues to climb 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 earnings before interest, taxes, and amortisation (Ebita) margin remaining around 24 per cent over fiscal years 2024 and 2025.
While Moody's expects Infosys to return up to 85 per cent of its free cashflow (cash flow from operations - capital spending) through shareholder distributions, such high returns can be accommodated within the credit profile of the company given its largely debt-free balance sheet and excellent liquidity position.