What fuels revenue growth for Infosys, TCS, Wipro?

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Mumbai: India’s top three IT services companies namely Infosys, TCS and Wipro have posted a stronger third-quarter performance. Infosys, TCS and Wipro recorded a quarter-on-quarter (QoQ) revenue growth of 7.6%, 3.2% and 3.3%, respectively.

This performance has come at a time when major economies around the globe have gradually overcome the severity of the COVID-19 pandemic. So what’s the common factor that has been actually fueling revenue growth for these three Indian IT services companies?

It is the growing demand for digital transformation and cloud services that continues to play a significant role in the revenues of these trios.

The strong Q3 results posted by Infosys, Tata Consultancy Services (TCS) and Wipro reflect the increasing demand for digital transformation and latest technologies such as cloud amid the ongoing COVID-19 pandemic, according to GlobalData.

“Cloud and digital transformation continue to be dominant themes ensuring robust revenue growth for Infosys, TCS and Wipro,” says Saurabh Daga, Technology Analyst – GlobalData.

Daga makes his point by citing some of the biggest cloud and digital transformation deals for these three companies.

For example, Infosys’ largest deal (total contract value of $3.2 billion) to date is an ongoing multi-year contract signed in December 2020, involving infrastructure upgrade and hybrid cloud migration for Daimler Motors.

Similarly, TCS bagged a 10-year contract to digitally transform Transport for London, a local transport administrator with a cloud-based smart mobility platform in September 2021.

“A strong and sustained demand environment, broad-based growth, healthy deal intake ($23.3 billion in 9 month FY22), and traction in the cloud, IoT and digital engineering give management confidence to sustain a robust revenue growth trajectory,” says Dipesh Kumar Mehta, Analyst – Emkay Global.

Most recently, in December 2021 Wipro won a five-year, $44.5 million contract to provide data centre services and accelerate migration to hyper cloud for UK-headquartered utility provider National Grid. 

“However, vertical-wise the revenue mix of these three companies is still heavily dominated by banking, financial services and insurance (BFSI) clients, with the sector making up 31.5%, 38.9%, and 35.2% of the Q3 revenues for Infosys, TCS and Wipro respectively,” adds Daga.

According to GlobalData’s IT Decision Makers Survey conducted in mid-2021, with rapid growth in digital banking and emergence of open banking and blockchain-based cryptocurrency,

The BFSI sector will remain an attractive proposition for IT service providers as per GlobalData’s IT Decision Makers Survey conducted in mid-2021. The survey revealed that digital transformation spending among BFSI companies grew from an average of 39% of the ICT budget in 2020 to 45% in 2021.

Amidst the strong growth tailwinds, Daga says that talent management remains the biggest challenge, especially for Infosys and Wipro, with attrition rates of 25.5% and 22.7%, respectively.

While TCS reported comparatively low attrition rates of 15.3%, Daga points it is still higher compared to its Q2 attrition level of 11.9%.

“While these companies are trying to negate the effects of attrition through mass fresher hiring and increasing the compensation for the senior professionals, the steps are also likely to impact their operating margin in the near term,” concludes Daga.

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