Optimism returns for Indian IT Services amidst robust deal pipeline
Expansion Strategy remains a positive indicator
In my last blog ”Positive Signs for Indian IT companies as they kick-off their expansion strategy in the #newnormal” I highlighted the expansion focus on Indian IT companies as a positive indicator for the sector. The same belief got a boost this morning with Wipro announcing acquisition of Belgium based Salesforce implementation partner 4C for €68 million, its second acquisition for the month.
Source: Company Website; NASSCOM Analysis
Majority company’s believe the worst is over amidst a ….
Apart from the expansion strategy another key indicator that is showing a return of optimism for the Indian IT segment is the promising deal pipeline which is showing signs of confidence for the segment strengthening the belief that it has bottomed out in 1QFY21, amidst the adverse impact of the pandemic.
Overall, the segments reported a negative revenue growth during the quarter driven by the adverse COVID impact across all segments with Lifesciences showing some stability.
- Infosys reported the lowest revenue decline of 2.4% q-o-q, showing more resiliency than peers. This decline was led by retail and manufacturing, the worst hit sectors; partially offset by communication and life sciences growing q-o-q.
…Robust deal pipeline which restores optimism…
Though, companies remain uncertain on how the pandemic shapes up, one key sign of optimism which has restored confidence in the visibility for coming quarters is the revival of deal pipeline.
Though all companies haven’t reported their deal signings for the quarter, the ones that have reported tallied a deal pipeline of over USD10 billion, with majority companies indicating a healthy deal pipeline.
- TCS – “The order book is characterized by an increased set of large deals at the top end, and a very large population of small deals. The total contract value (TCV) of deals signed in the quarter was $6.9 billion. In BFSI, the contract value was $2.1 billion, and the Retail order book was $0.9 billion. The TCV from deals signed in North America stood at $3.3 billion. The pipeline also has a good mix of all sizes of deals.”
- Infosys – Large deal wins up 5% q-o-q to $1.74 billion for the quarter ($330.6 million or 19% were new). Signed 15 large deals with five in BFSI, three each in retail, energy & utilities & hi-tech and one in manufacturing. This does not include the Vanguard deal which is signed in July only and is estimated to be worth $1.5 billion (Would be included in next quarter).
- Mindtree – Deal signings during the quarter remained healthy at USD 391million, up 20.7% YoY.
- L&T Infotech – Signed a large deal with TCV of USD20 million in the BFS segment in the UK while the Fortune 500 logo count increases to 67.
- Mphasis – Reported USD 259 million TCV wins in Direct International business, including a large deal of $105 million, of which 79% in new-generation services; highest ever deal wins in a Quarter. In addition to the Q1 TCV declared wins, another new $216 million deal signed in July 2020.
Source: Company Reports, NASSCOM Analysis
…And a return of guidance reporting
The outlook seems to be improving with most companies resuming guidance this quarter, which was discontinued in the last quarter; with majority companies expecting the revenue growth to resume from the second quarter.
- Infosys – Flat to 2% year-on-year in constant currency. Our operating margin guidance for the full year is 21% to 23%.
- HCL –Revenue to increase QoQ by an average of 1.5% to 2.5% in constant currency for the next 3 quarters. Operating Margin (EBIT): Between 19.5% and 20.5% for FY’21.
- Wipro – No Guidance, See Stability in next quarter
- TCS – No Guidance – Had stopped publishing guidance long before the pandemic started. However, the management indicated that the deterioration has bottomed out in 1QFY21 and they expect flat revenues YoY by 3Q in INR and by 4Q in CC terms.
Source: Company Reports, NASSCOM Analysis
To know more updates on Indian IT-BPM sector’s performance follow the Quarterly Industry Review released by NASSCOM every quarter.