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Strong Demand Continues to Drive Growth in 4QFY22, Year Closes on a Double-Digit Growth
Strong Demand Continues to Drive Growth in 4QFY22, Year Closes on a Double-Digit Growth

May 4, 2022

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Q4FY22 Performance Analysis of Top 4 Indian Publicly Listed Technology Services Companies (TCS, Infosys, Wipro and HCL)

The top four companies continued to maintain a good growth trajectory in the fourth quarter with total revenues increasing 1.8% q-o-q and 15.5% y-o-y (reported currency), with double-digit growth expectations being set for FY23.

Positive demand sentiments continued this quarter as well …

  1. The overall deal pipeline continues to remain healthy with the top four companies announcing a deal pipeline of over US$15 billion ($50+ billion for FY22), reflective of promising business sentiments across clients. Mid and small sized deals continue to expand, driving large part of the deal pipeline.
    • TCS reported its highest ever order-book/TCV of $11.3 billion for 4QFY22; $34.6 billion for FY22
  2. Net client addition[1] remained positive with Infosys and Wipro cumulatively adding over 50 clients an increase of 1.9% q-o-q this quarter (13.3% growth y-o-y), with revenue per client increasing for Infosys while slightly declining for Wipro, on a sequential basis.
  • Clients in the 1mn+ bracket increased 1.3% together for the four companies to 4,500+.

 

…Driving revenue growth for the quarter and the year

  1. Revenues increased 1.8% q-o-q/ 15.5% y-o-y for 4QFY22, and 18.1% y-o-y for FY22. This growth was driven by demand acceleration led by Cloud, Cyber Security, Enterprise Application Services and IoT & Digital Engineering.
  • TCS attained highest ever incremental revenue in a Year: $3.533 Bn.
  1. This strong demand is broad based across geographies as well as verticals.
  • Geographies - All the major markets witnessed growth in revenues in 4QFY22 sequentially as well as y-o-y. North America (2.3% q-o-q and 18.7% y-o-y) remained strong with Europe also maintaining a healthy growth trend (1.4% q-o-q and 13.2% y-o-y). India market also witnessed growth for Infosys at 7.4%, while it was down for TCS at 4.8%, q-o-q.
  • Verticals – All segments continued to witness growth sequentially as well as y-o-y led by  Telecom (4.2% q-o-q 20.5% y-o-y), followed by - Energy and Utilities (2.5% q-o-q, 13.5% y-o-y), Manufacturing and High-Tech ( 2.4% q-o-q, 18.2% y-o-y), Retail (1.8% q-o-q, 18.1% y-o-y), BFSI (1.5% q-o-q, 16.2% y-o-y), and Healthcare (0.4% q-o-q, 15.1% y-o-y).

 

Digital remains a key growth driver

  1. Digital revenues2[2]- For Infosys grew 1.8% sequentially and 36.2% y-o-y for 4QFY22; and 41.4% y-o-y for FY22. The share of digital in total revenues increased to 59.2% in 4QFY22 from 58.5% 3QFY22. For FY22 the share of digital revenues increased to 57.0% from 48.5%.

 

 

Maintaining profitability is becoming a challenge amidst rising attrition…

  1. Net margins witnessed a decline sequentially to 17.7% in 4QFY22 from 17.9% in 3QFY22, as supply pressures continue to strain margins. For FY22 also the margins were down to 18.0% from 19.2% in FY21, highlighting the impact of talent challenges.  
  2. Attrition witnessed a significant increase across all four companies as the demand for new-age skills remain on the rise.
  • TCS, Infosys, Wipro and HCL reported attrition of 17.4%, 27.7%, 23.8% and 21.9%, respectively higher compared to 15.3%, 25.5%, 22.7% and 19.8% in 3QFY22. The attrition levels continue to remain higher compared to pre-covid levels.

 

 

….while record level of hiring continues

  1. Employee count increased 6.2% q-o-q and was up 21.8% y-o-y as hiring continues to remain a priority to manage talent shortage. Moreover, companies are highlighting plans to hire more in the coming quarter.
  • Together the four companies added ~80,000 in 4QFY22.
  • Notably, the top four companies have hired 2,40,000+ employees for FY22, 2.8X hiring compared to net addition in the year FY21
  • Fresher Hirings: The top four companies hired over 2 lakh freshers in FY22 and plan to hire another 1.8+ lakh freshers in FY23
    • Infosys plan to hire 50,000 freshers in FY23.
    • TCS is targeting 40,000 freshers for the current financial year.
    • Wipro and HCL plans to hire 38,000 and 45,000 freshers, respectively in 2023.

 

  1. Utilization was down second quarter in a row (after being at record levels), with both Infosys and Wipro reporting lower utilization (excluding trainees) at 87.0% and 85.2%, respectively from 88.5% and 85.8%, respectively. The rising share of freshers joining the workforce could be a possible reason behind this fall.
  2. With the rise of digital, skilling of employees remains a key focus.
  • TCS reported 546k AGILE-trained associates (92% of total employees), 476K Digital Trained Associates (80% of total employees), and 22 million in learning hours (~37 hours per employee) in 4QFY22.
  1. Diversity maintained
    • TCS and Infosys together employ over 300,000 women employees:
      • With the share of women at TCS holding up at 35.6% (crossing 200,000 women employees). TCS also reported employing people from 153 nationalities.
      • Infosys reported a share of 39.6% women in total employees.

 

Innovation remains a key focus

  1. As on March 31, 2022, TCS had applied for 6,583 patents (+2.9% q-o-q), including 187 applied during the quarter, and has been granted 2,287 patents (+3.9% q-o-q).

 

Strong demand sentiments continue with companies maintaining the “Double-digit growth” expectations for FY23

 

  1. Guidance from companies highlight expectations for double-digit growth for FY23.
    • Infosys reported a revenue growth guidance of 13%-15% in constant currency, and operating margin guidance of 21% to 23%.
    • Wipro has given a revenue guidance for its IT Services business to be in the range of $2,748 million to $2,803 million, which translates into a sequential growth of 1.0% - 3.0% for 1QFY23. For the full year the company has indicated a double-digit growth expectation.
    • HCL has guided for 12%-14% constant-currency YoY revenue growth, and 18-20% on Ebit margin band, for FY23.

 

APPENDIX:

KEY AGGREGATE METRICS (TCS+WIPRO+INFOSYS+HCL)

 

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Source: Company Reports and NASSCOM Analysis

Note - Aggregated margins are weighted average margins based on revenues

 

[1] TCS and HCL do not 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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