Client mining is key to revenue and profit growth for big Indian ITplayers

While there is a general consensus that the $60 billion Indian IT industry will perform much better, the key factor responsible to revenue and profits growth is client mining or, in simple terms, how to extract more out of large and key clients.

According to a post-recession analysis on India’s five top IT companies, though acquisition of new clients has gone up, companies which have focused more sharply on client mining has done better than others.

While Infosys continued to lead the industry in terms of revenue per client (revenue/ client ratio) metric, TCS has significantly narrowed the gap with it with its strong management focus on farming its existing client base.

According to an analysis done by Religare Institutional Research, Infosys led the revenue/client metric with highest revenue of $10.4 million or Rs 46.28 crore per client (annualised on the basis of Q3 revenue).

This was a sharp improvement over the average revenue per client of $8million in Q3 2008-09. Infy’s top 10 clients accounted for more than one-fourth (26 per cent) of the revenue, another example of higher revenue/client ratio driven by its strong focus on mining existing accounts coupled with a superior portfolio mix and premium pricing, report said.

TCS, largest software exporter from India has also seen sharp improvement in client mining compared to peers. Its average revenue per client was $8.8 million in Q3 2010-11 against $6 million in the first quarter of same year.

“This in our view has been driven by company’s new management, which has greater focus on client farming and cross-selling services across key customers,” the reports said.

“Sharp focus on our strategy with rigorous execution discipline has helped us capture volumes and defend our margins,” said TCS MD & CEO N Chandrasekaran explaining the company’s much better results in Q3 2010-11. “Demand environment continues to be strong and we are focused on helping our customers become more efficient.”  
 
Another pointer to increased revenue from intensive client mining is that in the third quarter of last financial year, Infosys saw 29 per cent growth in revenue while its client base grew only 7.7 per cent. For TCS, the respective figures were 31 and 4.6 per cent.

Wipro, which has historically relied on client additions, has lagged due to slow client additions and lowest revenue/client ratio among top tier vendors with average revenue of $6.1 million. On the other hand Cognizant Technologies has grown both its client base as well as revenue per client by more than 20 per cent each, resulting in industry leading growth rates. Its client mining was $ 7.4 million in December quarter with top-10 client concentration stable at 30 per cent, one of the highest among offshore vendors.

Analyst report by CLSA India said “Offshore IT vendors have used different business strategies. While Infosys has tried to maintain its premium margins, Cognizant has sought to remain a growth leader operating at much lower margins. More recently, TCS has managed bit of both while HCL is trying to replicate Cognizant.”

Client mining strategies

To get more revenue and, of course, profits from each clients companies offer better service mix. Both Infosys and TCS have been consciously taking steps to improve their bouquet of services and move up the value chain. When a company offers a wider range of service it gains a higher share of IT budgets among clients resulting in volume-driven growth, Religare report said.

A broader set of products not only helps in mining a client better, but also increases the win rate for bids while making clients more dependent on vendors. Also, with vendor consolidation being undertaken by some customers, players with a broader service offering are likely to benefit the most.