The first quarter of the fiscal is generally considered a stronger period for the Indian IT services industry with the overall performance generally being upbeat while providing the commentary for remainder of the year. The first quarter of FY16 was no different with the top three Indian IT services—Tata Consultancy Services (TCS), Infosys and Wipro putting up a performance which was in line with market expectations or surpassed the benchmarks.
However, this quarter two things stood out for the Indian IT industry. Firstly, there was very pronounced commentary about how they are focused on new lines of business like digital with the use of coming of age technologies like automation and artificial intelligence. Secondly, all the three companies recorded healthy topline growth with Infosys being the outperformer but it was not a same picture on the bottomline as profit growth was still under a challenge.
Today, there is definite shift in how these companies are operating and the way in which they are addressing the changing market requirements. There is an increasing realisation that the current business model of revenue growth being directly dependent on the number of employees being added is unlikely to be sustainable in the years to come. The likely future business is going to come from delivery of services through the use of products, solutions and platforms, which is going to be less dependent on people. These multi-billion dollar IT companies are trying to reinvent themselves but the challenge remains on how they are going to prepare for tomorrow without losing focus on the existing business which is generating the revenues.
The largest IT services exporter from the country reported numbers which were in line with market expectations. Despite its size, TCS revenue for the first quarter stood at $4.03 billion recording a sequential growth of 3.5%, which comes after a lackluster performance in its previous two quarters. In rupee terms, the revenue stood at R25,668 crore with a sequential rise of 6%. The net profit during this period was $898 million, which was a sequential rise of 45%, while in rupee terms the rise was 48% and stood Rs 5,709 crore. The operating profit margin saw a sequential decline of 1% which was largely due to wage hike and cross-currency movements.
The verticals, geographies & service lines of TCS put in a performance which was almost in line with the market expectations and it is delivering this results despite the size of generating $4 billion revenue every three months. TCS emphasised its digital strategy which is expected to be a key future revenue generator. N Chandrasekaran, CEO, said: “Our significant investments in IP and platforms, digital capabilities and our execution track record gives us a firm foundation to capture growth in the current financial year.” He further added, “Given the strong pipeline and market adoption of digital across industries, we are investing to train over 100,000 professionals this year in all relevant technologies.”
The biggest positive surprise was from India’s second largest IT services exporter who after a dismal fourth quarter made a complete turnaround with headline numbers blasting through the sceptics. The sequential revenue growth of 4.5% in dollar terms for the first quarter was the highest in 15 quarters to touch $2.25 billion. However, the net profit declined by 4.5% sequentially to reach $476 million. In rupee terms, the IT services revenue was Rs 14,354 crore recording a sequential growth of 7% and the net profit touched Rs 3,030 crore which was a fall of 2.1%. The quarter saw a volume growth of 5.4%, which was the highest in 19 quarters.
Infosys delivered an all-round performance in terms of aggressive sales push with focus on its top accounts while equally supported by a efficient delivery engine. Buoyed by these numbers, Infosys revised its reported currency revenue guidance in US dollars terms higher to 7.2-9.2% as against its earlier projection of 6.2-8.2%. However, it has retained its constant currency guidance at 10-12%.
Infosys CEO Vishal Sikka said, “I believe that this is the result of the initiatives that we have taken. The deep client focus, organisational realignment in delivery, sales and consulting. This quarter also saw deep operational focus as well as widespread adoption of innovation and technologies that has started to bear results now.”
The first quarter has generally not been a period of happy tidings for India’s third largest IT services exporter and it put up a performance which was below its peers but in line with the expectations of the market. The IT services revenue stood at $1,794.1 million, which was sequential increase of 1%. The net profit at $344 million was sequential decrease of 6%. In rupee terms the IT services revenue was Rs 11,577 crore which a sequential increase of 3% while the consolidated net profit fell by 3.7% to reach Rs 2,188 crore.
For the second quarter, Wipro has projected the IT services revenue to grow in the range of 1.5-3.5% translating into $1821-1857 million. The IT major emphasised that it has undertaken a relentless drive towards automation which will improve its productivity while also providing significant thrust towards creating new products and solutions.
Wipro CEO T K Kurien said, “Overall while we are seeing stable demand environment, large deals are competitive and there is pressure on pricing in new deals. We see a pick up in momentum in Q2 as reflected in our guidance and we expect H2 to be better than H1.”