Infosys vs Wipro: Which IT Stock is Better?

Until a few years ago, the Indian IT industry was merely a contractor for global IT companies to perform menial jobs.

Today, this industry has emerged as the most preferred destination for global IT companies. This is due to the availability of highly skilled manpower.

Indian IT companies are giving tough competition to the global firms. They have risen to top positions in the global IT landscape over the last two decades.

The IT industry is now considered to be a backbone of the Indian economy.

And indeed is.

The industry contributes nearly 8% to India's GDP and is one of the largest employers in the country.

Most IT firms, big or small, are able to operate with ease and grow efficiently.

These firms have also made governance and access to government services easy and inexpensive.

In such an important industry, Infosys and Wipro are among the top 4 players in the country.

In this article, we compare these two companies to understand which is better.

Business Overview

With over four decades of experience in the IT services industry, Infosys is one of the leading IT companies in India.

It offers traditional and digital IT services to its clients across financial services, retail, communication, energy and utilities, and manufacturing.

The company also has a significant presence in emerging segments such as artificial intelligence, cloud computing, blockchain, and the metaverse.

Wipro is a global information technology, consulting, and business process services company.

Its operations are broadly classified into three segments, namely IT Services, IT products, and India State-Run Enterprise (ISRE), through which it offers a diverse range of services to its clients.

The company has a diversified client base across several industries, including banking, financial services, healthcare, energy, natural resources, and manufacturing.

The table below summarises the services, strengths, and threats of Infosys and Wipro.

Infosys vs Wipro Business Overview

	Infosys	Wipro
Services	Digital Marketing Digital Commerce Digital Experience Metaverse Applied AI Data Analytics Blockchain Internet of Things SAP Oracle Cloud Digital Supply Chain Cybersecurity Testing Application Mordernization API Economy & Microservices Consulting Application Development & Mainteanance	Data, Analytics & AI Applications Consulting Infrastructure Services Digital Operations and Platforms Blockchain Cyber Security & Enterprise risk DevOps Enterprise Ops Transformation Product Lifecycle Management Software as a service
Key Business Verticals	Financial Services and Insurance Life Sciences and Healthcare Retail, Consumer Packaged Goods and Logistics Communications, Telecom OEM and Media Energy, Utilities, Resources and Services Manufacturing Hi-tech	Banking, Financial Services and Insurance Healthcare Consumer business Energy Natural Resources and Utilities Manufacturing Technology Communications
Competitive Advantage	Leading player in Indian IT service space Established position across verticles Large scale operations leading to operational efficiency	Global IT player Diversified precense across sectors High repeat business
Threat	Intense competition in the global IT industry	Intense competition in the global IT industry

Data Source: Company Website

While Wipro enjoys a diversified presence across several sectors, Infosys has a larger scale of operations and is diversifying its presence across emerging themes such as metaverse and blockchain.

Revenue growth

Revenue growth is the percentage increase in revenue over a period of time. A high growth rate indicates faster growth of the business.

The revenue for Infosys grew at a compound annual growth rate (CAGR) of 7.5% in the last five years, against a 2.1% CAGR of Wipro.

R apid digitisation has helped Infosys increase its revenue, especially in the technology, energy, and utility sectors.

For Wipro, the revenue growth was led by growth in the IT services segment, especially in the finance, consumer business, and healthcare sectors.

Infosys vs Wipro Revenue Growth (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Revenue (in m)
Infosys	719,230	738,330	855,570	941,050	1,030,190
Wipro	580,710	570,465	616,327	638,626	644,725
Revenue Growth (%)
Infosys		2.7%	15.9%	10%	9.5%
Wipro		-1.8%	8%	3.6%	1%

Source: Equitymaster

Profitability

After revenue growth, the next important parameter is profitability.

Investors can determine the profitability of a company using two margins, namely operating profit margin, and net profit margin.

Operating profit margin determines a company's profit from purely selling a product or service as a percentage of its revenue.

The net profit margin determines the final profit of a company after considering all operating and non-operating expenses as a percentage of its revenue.

The five-year average operating profit margin of Infosys stands at 25.8% against 20.6% of Wipro.

Infosys is leading in terms of operating profit margin mainly because its large scale of operations helps the company keep its costs lower than its competitors.

With respect to net profit margin, Infosys is again leading with a five-year average of 20% against a five-year average of 15.8% of Wipro.

Infosys vs Wipro Profit Margins (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Operating Profit Margin (%)
Infosys	26.6%	26.8%	24.4%	23.9%	27.4%
Wipro	20.4%	19%	19.7%	20.2%	23.6%
Net Profit Margin (%)
Infosys	20.9%	22.7%	18.6%	18.3%	19.3%
Wipro	15.4%	14.7%	15.3%	16%	17.5%

Source: Equitymaster

Employee metrics

As the demand for IT services has gone up, it has become very easy for IT companies to capitalise on it. However, they are facing one problem that might cause a major hindrance in their journey.

Attrition.

When an employee leaves a company to join another, it is called attrition. A high attrition rate indicates that more employees are leaving the organisation.

A low attrition rate is considered good.

Hence for the IT companies to grow, they will have to keep a check on the attrition rate.

Infosys vs Wipro Attrition Rate (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Infosys	15.0%	16.4%	18.3%	18.2%	15.2%
Wipro	16.3%	16.8%	17.6%	14.7%	12.1%

Data Source: Annual Reports

For Infosys, the attrition rate in the financial year 2021 stood at 15.2%, while for Wipro, it was 12.1%.

In the recent quarterly results, the attrition rate for both companies went up. The attrition rate for Infosys and Wipro stood at 25.5% and 22.7%, respectively.

This shows that Wipro is better at retaining its employees than Infosys.

Another employee metric that will help assess an IT company is revenue per employee. A high revenue per employee indicates greater productivity, which ultimately translates into profits.

Infosys vs Wipro Revenue per Employee (in US$ '000)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Infosys	51.4	54.6	54	54.1	55.2
Wipro	46.6	49.2	46.6	43.9	41

Data Source: Annual Reports

The revenue per employee of Infosys in the financial year 2021 stood at US$ 55,200 against US$ 41,000 of Wipro.

The revenue per employee for Infosys grew at a CAGR of 1.4% in the last five years, while Wipro saw degrowth of 2.5%.

This indicates Infosys employees are more productive than Wipro's.

Shareholder payout through buybacks and dividends

Companies reward their shareholders by either paying regular dividends or buying back shares at a higher price from them. Companies with sufficient liquidity end up doing both.

Both Infosys and Wipro have been consistent in paying dividends to their shareholders and are also buying back shares from them.

Infosys and Wipro have bought back shares worth Rs 304.6 bn and Rs 335 bn from the market in the last five years.

The reason stated for the buybacks is to return excess cash to the shareholders.

However, that might not be the sole reason for a buyback.

When a company feels it is undervalued, it buys back shares from the market to increase the earnings per share (EPS) and reduce the price to earnings (P/E) ratio.

Infosys vs Wipro Dividend Ratios (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Dividend Yield
Infosys	2.4%	4.2%	2.1%	2.6%	2.7%
Wipro	0.4%	0.3%	0.4%	0.4%	0.3%
Dividend Payout
Infosys	40.9%	58.7%	60.5%	44.6%	59%
Wipro	5.7%	5.7%	6.7%	5.8%	5.0%

Source: Equitymaster

To assess which company is paying higher dividends, we can use two ratios, namely dividend yield and dividend payout.

Dividend yield tells how much percentage of the share price is the dividend. In contrast, dividend payout shows what percentage of the earnings per share (EPS) is the dividend.

While a company decides the dividend payout ratio, the dividend yield is based on the market price of the share.

Higher the dividends ratios, better the returns for the shareholders.

The five-year average dividend yield for Infosys stood higher at 2.8% against 0.4% of Wipro. T he five-year average dividend payout for the company is also higher at 52.7% while that of Wipro is 5.8%.

Infosys is leading in both ratios, indicating it pays higher returns to its shareholders than Wipro.

Debtor days

Debtor days signifies the number of days it takes for the company to convert its receivables into cash.

The lower the number, the better as it indicates a regular inflow of cash.

Infosys vs Wipro Debtor Days (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Infosys	7	7	7	7	7
Wipro	62	68	62	62	56

Source: Equitymaster

The average debtor days for Infosys in the last five years is 7, whereas, for Wipro, it is 62. This means Infosys has a shorter receivables period and can use the cash for various purposes.

Return on Equity

Return on Equity measures the rate of return the equity shareholders earn on their investment.

Higher the number, the better.

Infosys vs Wipro Return on Equity (2016-2021)

	2016-2017	2017-2018	2018-2019	2019-2020	2020-2021
Infosys	20.9%	24.8%	23.8%	25.5%	25.6%
Wipro	16.6%	16.8%	16.1%	17.7%	19.9%

Source: Equitymaster

Infosys is leading with 24.1% in terms of five-year average return on equity against 17.4% of Wipro.

Valuations

Valuation ratios such as price to earnings (P/E) and price to book value (P/BV) help determine the company's worth.

A high ratio indicates the company is overvalued, while a low ratio indicates it is undervalued.

P/E tells how much an investor is willing to pay for one rupee of earnings. P/BV indicates how much an investor is willing to pay for one rupee of book value.

Infosys vs Wipro Valuation Ratios (2020-2021)

	P/BV Ratio	5 year average P/BV	P/E Ratio	5 year average P/E
Infosys	5.6	0.0	21.7	0.0
Wipro	3.2	0.0	16.2	0.0

Source: Equitymaster

The P/BV ratio of Infosys for the financial year 2021 is 5.6, while that of Wipro is 3.2.

Infosys shares are slightly overvalued than Wipro shares in terms of P/BV.

Again in terms of P/E, Infosys shares are available at a premium when compared to Wipro. The P/E ratio of Infosys stood at 21.7, while Wipro's P/E stood at 16.2 for the financial year 2021.

However, when compared to their five-year averages, both the shares look slightly overpriced.

Key acquisitions

Both Infosys and Wipro have taken the mergers and acquisitions route to strengthen their digital capabilities and expand their footprint.

Wipro has acquired CAPCO for Rs 106.14 bn (US$ 1.45 bn) to strengthen its presence banking and financial services sector. It is its largest acquisition deal in the financial year 2021.

It has also acquired Designit, Cooper, Gallagher Financial Systems, Opus Capital Markets Consultants, LLC, HPS, and ProMAX Systems to develop Wipro HOLMES in the last five years.

On the other hand, Infosys has spent Rs 14.7 bn in acquiring GuideVision, Kaleidoscope Animations, Beringer Commerce, and Beringer Capital Digital Group in the financial year 2021.

It also acquired Brilliant Basics, Wangdoody, and Hitachi Procurement Service in the last five years.

Sustainability efforts

Both Infosys and Wipro are taking sustainability measures to reduce their carbon footprint.

Infosys is using technology to lower its carbon emissions. It has become carbon neutral in 2020, which is 30 years ahead of the deadline set by the Paris Agreement.

It is also reducing its water consumption and is also minimising its waste.

On the other hand, Wipro has reduce its overall energy consumption substantially across all its office spaces and data centres.

The company plans to achieve net-zero emissions by 2040 with an absolute emission reduction of 55% by 2030.

It is also using renewable energy to power its offices and plans to increase its renewable energy consumption going forward.

Impact of Covid-19 on business

Both Infosys and Wipro felt the heat of the pandemic when it hit.

The revenue growth slowed down in the first quarter, and the profitability was affected too.

Both Infosys and Wipro saw termination or postponement of client projects. They also saw a rise in unanticipated costs relating to keeping the work environment safe and enabling work from home for their employees.

However, the pandemic provided an excellent opportunity for growth for the companies.

With digital transformation being inevitable for most companies, Infosys and Wipro saw their revenue pick up in the next few quarters.

Post the second wave, the number of deals that the companies secured has also increased, leading to higher revenue and profits.

Future prospects

As a result of the pandemic, a ll businesses, big or small, are moving to digital platforms to keep their operations going.

This puts the Indian IT industry in a sweet spot as it has emerged as a hub for IT services in the past two decades.

Infosys and Wipro ventured into digital services way before the pandemic hit the world. This helped them to be a part of the transformation journeys of their clients.

Moreover, with emerging technologies such as blockchain and metaverse picking up pace, the companies are enhancing their service offerings to capture the growing demand for them.

Infosys expects to grow its revenue at 19-20% in the current financial year led by digital, cloud, and data. This expectation is backed by the huge deal successes they had in the financial year 2021 and the quarters after that.

Moreover, Infosys has also ventured into the metaverse by launching Metaverse Foundry. This allows companies to enter the metaverse with ease.

For Wipro, the growth is expected to be driven by digital, cloud, engineering, cyber security, 5G, AI, robotics, and blockchain.

Wipro has been offering services around these next-generation technologies and also has an established client base across various industries.

In the financial year 2021, the company's order book grew 33% in the second half of the year. It added 24 new clients with a total contract value of US$ 2.6 bn.

It also closed a mega-deal that is expected to generate US$ 1 bn in revenue.

Both the companies are expected to grow at a faster pace in the medium term provided they are able to offer unique services to their clients.

Which is better?

Infosys is a clear winner in terms of revenue growth, profit margins, dividends, and returns to shareholders.

A large scale of operations, established presence across geographies, and highly skilled workforce is helping the company operate efficiently.

However, Wipro is doing a better job at retaining its workforce. The attrition rate at Wipro has been lower than Infosys over the last few years, indicating its ability to retain talent.

Moreover, Wipro's shares are under-priced when compared to Infosys. But there is hardly any gap in their valuations.

Before considering investing in any company, check for its fundamentals and valuations. This will help in deciding the suitable investment for your portfolio.

Also, consider investing for the long term to reap greater benefits from your investments. Remember, the time spent in the market is more important than timing the market.

Still wondering which is better?

Use our feature-rich comparison tool, which draws a detailed comparison between any two companies. This tool also includes a graphical analysis making it easy for you to see trends!

Infosys vs Wipro

You can also compare both the companies with their peers.

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For a detailed analysis, check out the Infosys factsheet and Wipro factsheet.

You can also check out the latest quarterly results for Infosys and Wipro.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...