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IT-BPM Quarterly Performance Analysis-March 2019

Quarterly Performance Analysis- Summary:

  • Structural tailwinds like higher spend on technology, industrialization of digital projects and increasing offshoring outweighing growth concerns for the industry despite global macro concerns, BREXIT related uncertainties in the UK/EU and global trade frictions
  • For many companies, early investments in Digital have started paying off adding to the growth momentum
  • Client relevance continues to rise with large deal win momentum, a rising share of digital implementation projects, strong scope increases & improving client mining

Key Insights-

  1. Positive revenue growth during Q42019- Q-o-Q growth (excl Cognizant) was at 2.6% compared to 2% in Q32019, Y-o-Y growth of 8.5%. (Reported currency). Including Cognizant in the sample set, the revenue growth for the quarter comes down to 2.1% compared to 2.2% previous quarter. Further accentuates the sudden decline in Cognizant’s performance this quarter as till last quarter, Cognizant was growing faster than industry
  • Strong order books, sustained client mining and digital traction, driving growth momentum
  • Mid-tier companies (Persistent, Mindtree, Cyient, Hexaware, LTI, Zensar) also recorded an average growth of 1% during the quarter, almost in line with the top players (TCS, Infosys, Wipro, HCL) at 2.6%
  1. Digital deals & revenues growing: Q-o-Q growth was at 7.2% compared to 6.6% in Q32019, Y-o-Y growth of 39%. (TCS-31% of revenue share, Y0Y growth 41%, Infosys-32.5% of reve, Y-o-Y growth of 38%, Wipro-35% of reve, Y-o-Y growth of 34%)
  • Sustained digital share gains, consistent large deal wins indicating strong deal win momentum
  1. Margins remain under pressure: Margins remained under pressure for all the top companies during the quarter.
  • Seasonal wage hikes, currency fluctuations and investments in automation, localisation and sales initiatives impacting margins.
  1. Firms continue to add headcount: Headcount growth was at 1.5% QoQ and Y-o-Y growth of 9.7%, a net addition of over 16,500 employees during the quarter.
  • Firms addressing suitable talent requirement by building local scale in the US.
  • Top 4 firms (TCS, Infosys, Wipro, HCL) together added over 82,600 employees during the year ending March 2019
  1. Demand trends broadly stable:
  • Telecom, Manufacturing and retail sectors drove growth while BFS remained stable
  • North America and Europe grows: Europe records positive growth (2.5%) during the quarter while North America recorded substantial growth of (3.5%).

 

  1. Operational Metrics: Key operational metrics continued to remain robust for the firms with no major variations during the quarter
Parameter Q4FY19

(Q3FY19)

Comment
Attrition 18.4% (17.7%) Attrition levels increases -expected as employees move out for further studies and new growth areas
Utilization (excl trainees) 81.9% (81.9%) Utilization levels remains consistent as firms continue to invest in measures to improve productivity and efficiency
Client Additions   Client additions remained positive for the top firms, while slight slowdown for medium players
Revenue/Employee ($k) 50 (49.8) Revenue per employee increases marginally in Q4FY19 compared to previous quarter
Onsite as a % of revenue 55% Onsite continues to account for over half of total revenue share
  1. Reported Company Guidance:
  • Infosys – FY20 revenue guidance (7.5%-9.5%, CC YoY) –For FY19 the company recorded a growth of 7.9%
  • Wipro- 1QFY20 guidance of -1.4% to 0.6% QoQ, Weak quarter guidance despite strong deal wins highlights Wipro’s persistent execution challenges
  • Cognizant-US- Revenue guidance of 3.9-4.9% CC YY for 2Q. CY19 revenue guidance has been cut sharply to 3.6-5.1% CC YY from 7-9% YY CC.
  • HCL- FY20 revenue growth guidance of 14-16% CC (13.4-15.4% in US dollar)

Analysis is based on the quarterly financial results of listed companies (Infosys, TCS, Wipro, HCL, LTI, Cyient, Hexaware, Persistent, Mindtree, Zensar) accounting for over 36% of the total Industry revenues

Source: Company results, management commentaries and Analyst Reports

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