A generous dose of aggression, mixed with a reasonable amount of caution; would hold Indian IT firms in good stead over the next few years, says Virat Bahri of B&E
In the list of phoenix sectors, one would rightly consider IT as an anomaly. Yes, Lehman’s aftermath was crippling; but the IT sector wasn’t exactly getting buried last year. However, there was a crash landing of sorts that the sector faced, when some of their most cherished clients started freezing budgets; even as global warming continued to defreeze the globe. Avinash Vashishtha, Chairman and CEO, Tholons (also Founder, neoIT & Co-Author, The Offshore Nation), sums it thus, “Growth had stalled to a scenario of flat to marginal growth. Pricing pressure was huge; most clients got pricing discounts from 5-15%. Margin on new contracts in 2009 was anywhere from -5% to 0%.” All in all, the scenario was grim.
From that perspective, the Big 3 do seem to be providing a glimmer of hope, as far as Q3 results are concerned. Infosys has posted a revenue of $1.23 billion, with a q-o-q growth of 6.8% (a yoy growth of 5.2%), while PAT was at $334 million; a qoq growth of 5.4% and yoy decline of 0.6%. Wipro Technologies has posted a revenue of $1.13 billion in its IT services business, a growth of 5.8% sequentially and 2.4% yoy; and PAT at $259 million; a growth of 19% yoy. TCS has also shown signs of a robust recovery. Its revenues for the period stood at $1.64 billion (yoy rise of 10.3%) and net profit at $384 million; up by a strong 38.9% yoy.
So is this the calm after the storm? Indeed, considering that the outlook was majorly flat to negative for most IT companies last year, the growth figures have brought much needed cheer. When contacted, the Infosys spokesperson told us, “We can say that the worst is behind us and definitely our guidance has gone up as a result. The indications are that budgets will be flat but offshore-outsourcing will go up. But we want to still be cautious in this environment because one, it is still recovery in progress and two, the clients IT budgets are yet to be finalized.” Mindtree, which also declared its quarter results recently, voices a similar view. MindTree CEO & Managing Director Krishnakumar Natarajan elaborated to B&E, “In October 2008, customers were in a state of shock; the budgeting cycle was on a month by month basis. Customers are now more confident and appreciate the edge we provide them in areas like product engineering.” With regard to outllook for 2010, he said that customers are in the stage of freezing specific spending for 2010, so it would be early to give exact projections.
Despite that devil in the detail, IT majors are keen on getting their hiring plans back on track in the coming fiscal. The Big Three have together added over 16000 employees this quarter. There is an increased focus, however on lateral hires (experienced people). Mindtree also added some 463 people in the quarter. Is that a sign of early aggression? It seems that the growth in business has given these companies enough confidence to step on the gas w.r.t. hiring. The Infosys spokesperson tells us, “Growth itself will give a lot of buffer to make the investments we want to make and maintain our margins. Revenue growth, along with the utilization going up, has given a buffer to margins and compensated to some extent the wage hikes and rupee appreciation. With continued growth, we expect this will be the case in coming quarter as well.” Moreover, as Natarajan opines, “As the year progresses, we should be getting the opportunity to get prices back a little up.” The issue of rupee appreciation could continue to trouble Indian IT majors going forward as it impacts margins. Tech Mahindra would particularly face problems since it acquired Satyam; which has a substantial pound billing.
It may seem as the beginning of a recovery for some, but Avinash Vashishtha cautions that it would be premature to say that we would be back to pre-downturn levels soon. He reiterates that Q3 results have been particularly good for larger IT players, largely because their existing clients have started reactivating their offshoring contracts. Moreover, they are much more confident of offshoring as a business model, since cost cutting has become even more critical to them post the recession. According to Avinash, true numbers should start coming in within a 6-9 month cycle. Mid-tier firms may continue to face problems as their clients haven’t yet started warming up to offshoring in the true sense.
According to a 2010 CIO survey by Gartner Executive Programs (conducted from September to December, 2009), IT budgets will be largely flat in 2010, with a global weighted average growth of 1.3% over 2009. That’s a significant improvement, considering that they declined by 8.1% in 2009 over 2008. Mark McDonald, group VP and Head of Research, Gartner EXP, “As the economy transitions from recession to recovery, enterprises will transition their strategies from cost-cutting efficiency to value-creating productivity.”
From that perspective, the Big 3 do seem to be providing a glimmer of hope, as far as Q3 results are concerned. Infosys has posted a revenue of $1.23 billion, with a q-o-q growth of 6.8% (a yoy growth of 5.2%), while PAT was at $334 million; a qoq growth of 5.4% and yoy decline of 0.6%. Wipro Technologies has posted a revenue of $1.13 billion in its IT services business, a growth of 5.8% sequentially and 2.4% yoy; and PAT at $259 million; a growth of 19% yoy. TCS has also shown signs of a robust recovery. Its revenues for the period stood at $1.64 billion (yoy rise of 10.3%) and net profit at $384 million; up by a strong 38.9% yoy.
So is this the calm after the storm? Indeed, considering that the outlook was majorly flat to negative for most IT companies last year, the growth figures have brought much needed cheer. When contacted, the Infosys spokesperson told us, “We can say that the worst is behind us and definitely our guidance has gone up as a result. The indications are that budgets will be flat but offshore-outsourcing will go up. But we want to still be cautious in this environment because one, it is still recovery in progress and two, the clients IT budgets are yet to be finalized.” Mindtree, which also declared its quarter results recently, voices a similar view. MindTree CEO & Managing Director Krishnakumar Natarajan elaborated to B&E, “In October 2008, customers were in a state of shock; the budgeting cycle was on a month by month basis. Customers are now more confident and appreciate the edge we provide them in areas like product engineering.” With regard to outllook for 2010, he said that customers are in the stage of freezing specific spending for 2010, so it would be early to give exact projections.
Despite that devil in the detail, IT majors are keen on getting their hiring plans back on track in the coming fiscal. The Big Three have together added over 16000 employees this quarter. There is an increased focus, however on lateral hires (experienced people). Mindtree also added some 463 people in the quarter. Is that a sign of early aggression? It seems that the growth in business has given these companies enough confidence to step on the gas w.r.t. hiring. The Infosys spokesperson tells us, “Growth itself will give a lot of buffer to make the investments we want to make and maintain our margins. Revenue growth, along with the utilization going up, has given a buffer to margins and compensated to some extent the wage hikes and rupee appreciation. With continued growth, we expect this will be the case in coming quarter as well.” Moreover, as Natarajan opines, “As the year progresses, we should be getting the opportunity to get prices back a little up.” The issue of rupee appreciation could continue to trouble Indian IT majors going forward as it impacts margins. Tech Mahindra would particularly face problems since it acquired Satyam; which has a substantial pound billing.
It may seem as the beginning of a recovery for some, but Avinash Vashishtha cautions that it would be premature to say that we would be back to pre-downturn levels soon. He reiterates that Q3 results have been particularly good for larger IT players, largely because their existing clients have started reactivating their offshoring contracts. Moreover, they are much more confident of offshoring as a business model, since cost cutting has become even more critical to them post the recession. According to Avinash, true numbers should start coming in within a 6-9 month cycle. Mid-tier firms may continue to face problems as their clients haven’t yet started warming up to offshoring in the true sense.
According to a 2010 CIO survey by Gartner Executive Programs (conducted from September to December, 2009), IT budgets will be largely flat in 2010, with a global weighted average growth of 1.3% over 2009. That’s a significant improvement, considering that they declined by 8.1% in 2009 over 2008. Mark McDonald, group VP and Head of Research, Gartner EXP, “As the economy transitions from recession to recovery, enterprises will transition their strategies from cost-cutting efficiency to value-creating productivity.”
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
