IT is staging a turnaround

IT is staging a turnaround

IT is staging a turnaround

 An industry which has become the face of the new vibrant India, that employs more than 2.2 million people in the country and earns an export revenue of more than $43 billion in a year, is now witnessing fast growth. 

Indicating that the overall IT business environment is coming back to normal, the country’s top four IT firms, TCS, Infosys, Wipro and HCL have all showcased positive performance for the quarter ended on March 31, 2010. Their performance (quarterly results are out only for these four companies so far) is a clear indication that things are turning for the better.

The reasons companies attributed for this recovery to is, larger utilisation of employees, improving efficiency and widening their geographical reach. Country’s largest IT firm Tata Consultancy Services (TCS), for example, posted a highest revenue growth in three years. It reported a revenue of Rs 7,738 crore in the quarter ended March 31, 2010, a eight per cent jump over the same quarter last year.

Similarly, Wipro Ltd said that its revenue from IT service business was Rs 5,260 crore registering a growth of 7 per cent year-on-year (YoY) and Infosys Technologies Q4 revenue was up 5.5 per cent to Rs 5,944 crore. Another software firm, HCL Technologies, reported a revenue of Rs 3,076 crore in the March quarter, a rise of 7.5 per cent.

Profitability of these companies, barring Infosys, have also improved significantly in the March 2010 quarter. TCS, for example, earned Rs 2,001 crore in Q4, 50 per cent higher than same period last year. Wipro’s profit before interest and tax was Rs 1,282 crore, and that of HCL was at Rs 344 crore, up 20 and 58 per cent, respectively, from a year ago period. Profits for Infosys, however, was flat at Rs 1,600 crore.   

Thriving on hope
Expressing optimism for the future, while announcing the results, Wipro Chairman Azim Premji had said, “the business environment is becoming normal, European market is witnessing a slow recovery but we have seen a strong quarter with a volume led growth and clients slowly have started allotting IT budgets. We also witnessed a recovery in our verticals like technology and teleom.”
Echoing similar sentiments, Infosys CEO S Gopalakrishnan said, “the economic environment continues to be challenging and the recovery in western market is a huge opportunity.”

Another major reason was the improvement in demand from the BFSI (Banking, Financial Services and Insurance) sector. The sector being the traditional growth driver of the Indian IT services companies and this contributed to the lion’s share of their revenues.

Although companies had started to focus more on Europe as a market, majority of the business was from North America. Other major verticals which helped in businesses for majors were health care, BPO, consulting, retail and manufacturing.
Large global companies have also raised their IT spends and Indian companies are bagging new clients. Organisation like TCS, Infy, Wipro also added new clients into their kitty during the fourth quarter including The Main Street America Group, Best Buy Co, Citi Bank among others.

Wipro Joint Chief Executive Girish Paranajpe said its global IT services business had signed large multi-year deals in the Q4 with a cumulative amount to nearly $1 billion. “The deals are in the range of $250-300 million. They are from Europe, the US and other countries,” he said.    
Pay hikes
After a near one year freeze, IT biggies are also handsomely raising employee salaries, implying the fact that the companies are slowly exiting from the prolonged lull in the industry. Announcing its quarterly results Infosys CEO S Gopalakrishnan had said that the company awarded wage hikes of 14 per cent and also plans to recruit 30,000 employees in the financial year 2010-11.
Likewise, TCS also said it expects to spend more than $193 million on salary after a 13 per cent hike in pay packets. Meanwhile, Wipro which hiked its employee salary by 8 per cent promised that it will pay 100 per cent variable pay and also initiate promotion process.

IT majors have also been bullish on the forecast for the financial year 2010-11 and also for the Q1 of the next fiscal. Infosys, made a forecast of revenue increase in the range of Rs 5,919 crore and Rs 5,963 for the Q1 which indicates YoY growth of 8.2 per cent to 9 per cent. It projected the revenue for the year 2010-11entire period ending March 31, 2011 at Rs 24,796 crore and Rs 25,239 crore. Though financial recovery, market outlook and deal size etc point at a strong growth, experts still believe that the major concern for the IT industry will be the fluctuating dollar and appreciating rupee. The rupee gained six per cent against dollar last year.  
As the demands from clients are going up, Indian IT firms are looking to optimise costs, bring in a performance-driven workforce culture etc. Volume growth, new ways of pricing model like outcome based pricing, legislations by the western government are also some of the major hurdles haunting the decision makers. Analysts from Zinnov Consulting Karthik Ananth, says the impact of these initiatives will be visible 18 months down the line and many of these initiatives have the potential to disrupt the industry going forward.  

Going forward
Industry veterans, analyst and companies believe that the major facilitator for the growth for the future is the return of normalcy to the global outsourcing market. Indian IT majors have seen addition of new clients and signed deals worth more than $50 million, companies have also renewed outsourcing partnership also in the last quarter.

    However, the slow recovery of the European market prompts companies to take decision cautiously. Experts also believe that European market is just turning the corner and the success of firms is vastly dependent on their approach to the market and the verticals of interest. Apart from the traditional BSFI verticals, manufacturing, health care, education business is witnessing a boom in the western markets and also globally which also throws light of hopes to the Indian IT services business.
DH News Service