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Robust Demand - Washing the Traditional 1Q Blues
Robust Demand - Washing the Traditional 1Q Blues

July 16, 2021

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Q1FY22 Performance Analysis of Top Indian Publicly Listed Technology Services Companies (TCS, Infosys and Wipro)

 

The top three companies have reported an exceptional first quarter with total revenues of over US$12 billion increasing 5% q-o-q and 22.2% y-o-y, with expectations of a double-digit growth being reaffirmed for FY22.

 

Positive demand sentiments across clients…

  1. The overall deal pipeline remains healthy with the top three companies announcing a deal pipeline of over US$11 billion, primarily driven by a large number of smaller digital deals which is reflective of promising business sentiments across clients.
  2. Net client addition[1] remained positive with Infosys and Wipro adding over 140 clients (an increase of 5.2% q-o-q) this quarter, with revenue per client increasing for both on a sequential basis.
  • Clients in the 1mn+ bracket increased 3.4% together for the TCS, Infosys, and Wipro to over 2,500.

 

 

…Continued to drive the revenue growth this quarter

  1. Revenues increased 5.0% q-o-q/ 22.2% y-o-y (3.7% q-o-q/ 20.7% y-o-y - excluding the Capco’s acquisition impact from Wipro) as the demand continued to witness improvement led by digital transformation and cloud projects.
  2. This quarter is an exceptional quarter in terms of 1Q q-o-q growth, which is usually a weak quarter (Average q-o-q growth for last five years in 1Q is 2.0%).
  • Geographic Markets - All the major markets witnessed growth in revenues sequentially as well as y-o-y. North America (5.9% q-o-q and 19.7% y-o-y) continued to witness recovery with Europe maintaining a healthy growth trend (6.3% q-o-q and 32.8% y-o-y). India was a drag for TCS declining 15.6% q-o-q, while it grew marginally at 1.2% q-o-q for Infosys.
  • Verticals – All segments continued to witness growth sequentially as well as y-o-y led by  Banking and Finance which grew 7.3% q-o-q (28.4% y-o-y) followed by Retail (7.1% q-o-q, 29.8% y-o-y), Energy and Utilities (6.2% q-o-q, 18.4% y-o-y), Healthcare (5.9% q-o-q, 22.8% y-o-y), Telecom (5.1% q-o-q, 11.7% y-o-y) and Manufacturing and High-Tech (4.6% q-o-q, 17.7% y-o-y).

 

…With Digital and Cloud remaining in the driver’s seat.

  1. Digital revenues2[2]- For Infosys grew 9.7% sequentially and 46.9% y-o-y, the share of digital in total revenues increased to 53.9% during the quarter from 51.5% in 4QFY21.

 

 

Profitability sustained…

  1. Net margins declined sequentially to 19.1% from 19.6% in 4QFY21, primarily driven by salary hikes and new hires, with most companies resuming increments and appraisals during the quarter. Notably, y-o-y margins remained high compared to 17.9% in 1QFY21 as cost optimization levers such as the absence of travel remained in force.  

 

….Despite a record level of hiring and salary increments.

  1. Employee count increased 4.3% q-o-q and was up 14.1% y-o-y as hiring continued to pick up steam during the quarter with companies highlighting more hiring plans for the rest of 2021.
  • Together the three companies did net hiring of ~41,000 in 1QFY22.
  • TCS and Infosys announced plans to hire +40,000 and ~35,000 employees in FY22.
  1. Attrition continues to inch up across all three companies as the demand for new-age skills remains on the rise.
  • TCS, Infosys, and Wipro reported attrition of 8.6%, 13.9%, and 15.5%, higher compared to last quarter by 140 bps, 300 bps, and 340 bps, respectively.

 

In the current tough times, employees remain at the focal point

  1. All three companies have vaccinated more than 50% of their employees with at-least one dose.
  2. With the rise of digital, skilling of employees remains a key focus.
  • TCS reported 478k AGILE-trained associates (~95% of total employees), 3.2 million digital competencies (6 digital competencies per employee), and 10 million learning hours (~20 hours per employee) in Q1FY22.

 

 

Strong Q1 growth instills more optimism reaffirming the “Double-digit growth theme” for FY22

 

  1. Guidance from companies continues to reaffirm the double-digit growth for FY22. Both Infosys and Wipro have released promising guidance for the financial year and the next quarter, respectively, with TCS also indicating double-digit growth in its conference call.

Source: Company Reports and NASSCOM Analysis

Note - Aggregated margins are weighted average margins based on revenues

To know more about how the overall aggregate numbers look like for the Indian Technology Industry download NASSCOM's Quarterly Industry Review. Stay tuned for more updates on technology company results.

 

[1] TCS doesn’t report active clients details

2 Includes only Infosys as others don’t report digital separately


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Neha Jain
Senior Analyst

Neha Jain

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