In this edition, we delve into the financial performances of leading India-based IT services firms for Q4 and the entire FY24, building upon our previous analysis titled Accenture Earnings and Indian IT Service Companies revenues – A trend in play? There are similarities and a mixed bag too. The below narrative highlights and builds on the results announced by Infosys, TCS, and HCL Tech, the top three leading providers.
Let’s look at some of the data points.
Revenues and Revenue Guidance:
- FY constant currency basis, we saw all three growing positively.
- QOQ constant currency, Infosys declined in Q3 and Q4 of FY 24, while TCS and HCL showed flattish positive growth.
- While Accenture saw negative growth in its latest quarterly numbers, Only Infosys followed suit. There was a divergence with TCS and HCL Tech.
- FY25 guidance: Infosys and HCL shared muted guidance at 1% to 3% and 3% to 5% YoY in CC terms, respectively.
TCV:
- In FY 24, TCS clocked in a strong order book of $42.7 billion. Infosys had a large deal TCV of $17.7 Bn and HCL reported $9 Bn.
- A simple math on consolidated potential opportunities will be a TCV of ~ $60 Bn. Conversion on a conservative basis would still be a significant top-line addition going forward.
When we dig one level deeper, where did this growth come from?
- America has been flattish to negative. There is a similar trend in Europe. Companies were looking outside of these regions for growth. Each of these three derives close to 51% to 64% from the Americas, signalling a significant dependency on the American economy and its policies.
- Banking still accounts for a third of revenues.
Headcount:
- On a YoY basis, we saw headcount decrease marginally for TCS and Infosys. But then, this was not a big surprise, as it was made out to be. The decline could be clearly seen on a QoQ basis starting from Q2 FY24 for TCS and Q4 FY23 for Infosys.
- HCL saw a positive addition on an FY basis. Again, the upswing has been from Q3 FY 24 onwards. Q1 and Q2 saw negative growth.
- A very interesting narrative was seen in the potential decoupling of headcount from revenues. With GenAI gaining traction, a moderate decoupling could be expected. They have started announcing Client engagements using GenAI. As an example, TCS has $900 million worth of AI and generative AI projects in the pipeline, and has won over 200 engagements in AI so far this year. Going by this, the coming quarters will throw more light on this.
- Attrition is contained in a band, barring the one seen during the Great Resignation period a year back.
Operating Margins:
- The listed companies have been at the top of their game on this front and have many levers when it comes to managing it. TCS is the clear leader, followed by Infosys and HCL.
- However, with increasing investments in GenAI, there could be a dent in the coming quarters. Overall, leadership seems comfortable with current levels.
In summary:
As we navigate through the complexities of the IT services landscape, the road ahead looks promising.
- It’s a mixed bag.
- Outside of Infosys, TCS, and HCL, the other two in the top five, Wipro and Tech M, have seen leadership changes in the recent past and are embarking on internal restructuring and growth programs.
- Much hinges on the recovery in the US. If the US Fed cuts rates earlier than expected, we could potentially see a loosening of budgets and top-line conversion, but then this will be spread out well into FY 26, too.
- There is an interesting build-up on the revenue/headcount/utilization/GenAI front which I will explore in the upcoming newsletter.
- The adoption of GenAI holds promise but its impact on revenue productivity remains to be seen. Only time will tell.
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Data source: websites of Infosys Tata Consultancy Services HCLTech
Disclaimer: The views expressed in this post are personal and do not reflect those of my organization.
