Analysts more optimistic about IT services companies
Shivani Shinde / Mumbai Jan 01, 2010, 01:40 IST
The year 2009 was one of the most challenging years for the Indian information technology (IT) services sector. Even as IT spends went down by almost 6-8 per cent globally, Indian IT companies had to grapple with the confession by Ramalinga Raju regarding a nearly Rs 8,000-crore fraud at Satyam Computer Services.
But 2010, according to analysts and industry players, could bring in some much needed optimism, never mind that research firms predict a flat growth in terms of IT budget spend.
“We are exiting 2009 with some level of optimism, as the demand environment appears to be improving compared with last year. Customers will spend on transformational engagements — both in terms of demand generation for their business and cost transformation,” said Suresh Vaswani, joint CEO of Wipro Technologies, India’s third-largest IT company.
The situation was far different exactly a year ago. In addition to the sombre projections for the October-December 2008 quarter by the IT companies, both Infosys and Wipro lowered their dollar forecasts too.
But expectations for October-December 2009 quarter are much more positive. An Edelweiss report says TCS, Infosys and Wipro seem set to end the calendar year 2009 on a high, with quarter-on-quarter revenue growth in October-December 2009 likely to be in the 4-5 per cent range.
Vaswani further said: “We do see more opportunities to solve business challenges that our clients face. Hence, the higher demand for transformational and integrated IT and BPO solutions.”
Krishnakumar Natarajan, president and CEO of IT services at MindTree, expects at least the first quarter or the month of the new year to be much better than 2009.
“But I don’t think we will go back to the growth levels that we saw two years ago. While the budget scenario will be clear only towards mid-January, the outlook is not as bleak as it was a year back,” he says.
Industry body Nasscom too is in a positive mood. Nasscom, which projected a growth rate of 4-7 per cent for the current financial year, is hopeful that the industry will witness a double-digit growth rate for 2010-11. The slight improvement in the global markets had an immediate impact on IT companies’ stock performance. Indian IT stocks have been re-rated over the last eight months from their historic lows — TCS and Wipro’s valuations are up 175-185 per cent from the bottom, while Infosys’ valuations are 100 per cent higher than the historic low of 10.5x, according to a recent report from IDFC-SSKI India.
The year 2009 also showed the resilience of the IT sector in fighting the slowdown. Companies took various steps — reduced bench strength, salary hikes were controlled, all the IT giants put hiring on hold (both lateral and campus), working hours were increased, and much more.
Moreover, IT firms also geared up their operational capabilities. Sales and marketing initiatives got a renewed thrust, there were forays into emerging markets like Latin America, Europe and Asia, including in India. Non-linear growth models were the focus of growth with attention to intellectual property-driven business. There was also a shift to outcome-based pricing. The steps taken to handle the slowdown would, in all probability, change the IT industry.
For instance, the non-linear initiatives that Infosys started three-four quarters ago is expected to drive business over the next five years. The company currently has 84 clients in new engagement models (NEMs) with deal sizes of around $165 million (over Rs 765 crore). The company is currently looking at newer NEM opportunities, which will be greater than $500 million (nearly Rs 2,320 crore), going forward.
Clearly, the next decade will be crucial for Indian IT firms, as consolidation among the large global players has already begun. “It’s a mixed picture — no one company is a clear winner in its own right. While TCS leads in integration and market presence, Cognizant is ahead in perfecting a sales and marketing engine that improves customer experience. Cognizant also stands out in strengthening the core, while investing for the future. Infosys leads in customer segmentation and displays maximum finesse on this aspect; Wipro leads in partnerships, especially those instrumental in driving penetration in emerging markets. TCS has substantially closed the gap in its organisation structure adopting a more customer-centric structure in line with the other two,” said Viju George of Edelweiss.
It's good that the author introduced Cognizant at least at the end. Today, no Indian IT story is complete without Cognizant.
Cognizant, over the last eight quarters, has been consistently adding more revenues (in dollars) than TCS, Infosys and Wipro. One interesting aspect to note is that Cognizant added more people to its headcount in the last twelve months relative to TCS, Infosys and Wipro. In fact, TCS added 10,000 people in the last six months and shed more than 10,000, while Infosys added close to 10,000 people during the same period and shed over 90 percent of them.
While Cognizant silently outperforms, others loudly underperform.
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