Cognizant is the firm that gets all the attention these days. In Bollywood parlance, it is the ?item? firm. But focusing too much on the Nasdaq-listed company will be a mistake, for the Indian software firms have made a remarkable comeback in the second quarter and that?s all the investors are interested in. This is not to take anything away from Cognizant, which clocked a 30% growth in quarterly revenues and continues to be a threat not just for Infosys, TCS and Wipro but also for the likes of IBM in India.
But it makes much more sense to see why our desi firms have been able to find their midas touch again. Their performances this quarter have shown that, provided the strategies are right, there will always be light at the end of the quarter for them. Each of the Indian IT firms repealed strategies and tasted success, showing why the software sector still is India?s showpiece industry.
First up, let?s examine what Infosys did right. For consecutive quarters, Infosys has been under-performing. Analysts said the Bangalore-based behemoth had lost its mojo. Although the company had met its conservative guidance numbers repeatedly, it had fallen short of the analyst numbers. A few years ago, such a scenario was unthinkable. But I, for one, was quite sure that with such a great management bandwidth and marketing ingenuity and a high-class global delivery model, the company can?t keep falling short. And, in Q2, the firm came roaring back to shape and form. The positive numbers are now being viewed as a vote of confidence in the new management.
Sure, founder-chairman Narayana Murthy has exited the firm and human resources head TV Mohandas Pai too has moved out, but the firm still boasts of Kris Gopalakrishnan, SD Shibulal, Ashok Vemuri, BG Srinivas, V Balakrishnan and a whole host of other stalwarts. As they say, you can?t keep a good thing down for too long, as the company surpassed analyst expectations registering a net profit of R1,906 crore, a growth of 9.7% on a year-on-year basis. Revenue moved up by 16.6%. The numbers shredded to pieces the notion that the industry could be hit by macro-economic challenges.
It was clear that Infosys had changed a gear or two during the period. Its sales engine looked well revved up. It won 45 new clients; a staggering feat reminding people of its heydays during the last decade. Infosys also referred to a peculiar phenomenon that helped during the quarter. Usually client spending would be front-loaded, with most of the spending coming during the first half. But, this time, the spend has looked much more even. The key term for Infosys was ?aggression? and it showed in its revenue guidance of 3.2-5.4% sequential growth.
Wipro was the other positive story. The company had started earning the reputation of being a slow mover and Premji was not liking it one bit. He threw in his favourite ?son? TK Kurien into the CEO?s box and watched intently. The dual CEO model was cast away and here came Kurien with his customary single-mindedness. A couple of quarters down, Wipro has started to regain its aggressiveness. Structural issues are now a thing of the past. Its net profit inched up by 1% to R1,301 crore, while its revenues moved up 18% to R9,094 crore, surpassing Street expectations. Wipro added 44 new clients during the period. It has added one more $100-million-plus client during the period. Wipro now has five such clients.
It has forecast a revenue between $1.50 billion and $1.53 billion for the third quarter, up 2-4%, and that certainly is good tidings for the firm that was looking down the barrel not too long ago. Wipro posted a 5.5% sequential growth, higher than its guidance of 2-4%. During the quarter, Wipro recorded a 4.6% jump in dollar revenues compared to the previous quarter, staying within the lines of 4.7% and 4.5% posted by TCS and Infosys, respectively. Wipro?s ability to think beyond banking, financial services and insurance (BFSI) vertical and maintain a good mix of vertical revenues has helped. Energy & utilities was one such vertical.
Industry leader TCS had a blip though. It missed Street estimates, a rare development for the firm in recent times. TCS reported a 4.7% sequential rise in revenue in dollars, but that was well below expectations. Brokerages had estimated a 5-6% growth in dollar terms for most firms. But there are plenty of positives, too. Its European business, for instance. TCS?s UK market grew by 10.3% and continental Europe swung ahead by 9.3%?despite all the troubles in the continent. Its volume growth of 6.25% is better than Infosys?s 4.5%. Client additions improved to 35 compared with 24 in the previous quarter. Its net profit for the quarter surged by 6.1% to R2,301 crore. But sequentially it dipped by 4.7%, as the company took a hit due to higher wage expenses (up 6.6% sequentially). In the case of TCS, one has to look at the broader picture. The Mumbai giant has been the one that has been keeping the $76-billion Indian IT industry flag flying high even during the toughest of times; even when Infosys and Wipro slipped. TCS is the big boy of Indian IT and short-term glitches cannot dampen its spirits.
But chances are that the focus will still stay on Cognizant, despite all the heroics of the Indian firms. Cognizant grew fastest among peers at 7.8% by recording dollar revenues of $1.6 billion during the quarter. It also beat its own sequential growth outlook of 5.7%. Cognizant has raised its guidance for the current calendar year to 33% from the earlier 32%. But then comparing it to Indian IT firms is not what we want to do?after all, it?s an American firm with a large Indian base. There is some worry for Cognizant though. Analysts have cautioned their clients on Cognizant?s high exposure to BFSI vertical. It needs to de-risk substantially.
dj.hector@expressindia.com