India IT Industry Has the Momentum

Summary

India’s information technology (IT) services industry continues its upward momentum in the third quarter of financial year 2016-17.  In this report, we analyze the revenues of the India IT industry services sector for the third quarter and compare these with the same period the previous year.

This report discusses the financial results of the top 20 India-based IT companies listed on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or both.  We believe this Insight provides a representative sample of India’s IT market.  The suppliers included in this report recorded combined quarterly revenue of $13.1 billion, representing 6.5 percent year-over-year growth rate.  Only six out of the 20 companies reported a slight year-over-year decrease in software or product revenues, while the rest showed growth in Q3.  The rupee depreciated by 2.1 percent during the quarter compared with the same period last year.

Supplier Revenues

This ARC Advisory Group report discusses the most recent quarterly revenue results of the major publicly traded IT services companies based in India.  We translated financials reported in Indian rupees to US dollars using an average exchange rate for the given reporting period.  Owing to this translation, some companies may show negative growth.  The suppliers’ reporting period for this analysis is the quarter ending in December unless stated otherwise.  We have considered the consolidated revenues for all vendors, including subsidiaries’ revenues, except for Wipro, for which we only considered IT products and services. 

3i Infotech reported total revenue of $36.88 million for the quarter ending December 31, 2016.  This represents a decline of 15.2 percent compared with the same period prior year.  Ninety-five percent of 3i Infotech’s revenues came from “IT Solutions” (software products & services, software development, consulting, and IT infrastructure services) and the rest from “Transaction Services” (IT-enabled services). 

Cyient reported revenue of $135.8 million for the quarter ending December 31, 2016.  The revenues were up by 14.4 percent year over year.  Geographically, revenues from the Americas contributed 58 percent, Europe 24 percent, while APAC and others contributed 18 percent.  Cyient organized itself into eight business units effective from April 2016.  From the business unit perspective, contributors were – 35.6 percent from aerospace & defense; 9.4 percent from transportation; 9.3 percent from industrial, energy & natural resources; 3.9 percent from semiconductor; 1.9 percent from medical & healthcare; 17.2 percent from utilities and geospatial; and 22.7 percent from communications.  Industry-wise, revenue was 46.3 percent from aerospace and defense, 17.1 percent from industrial, 11.3 percent from medical, 24 percent from communications, and 1.3 percent from transportation.  Total employee strength was 13,094 at the end of Q3.  Cyient acquired UK-based geospatial services provider Blom Aerofilms Ltd. in December 2016.

Geometric reported total revenues of $37.52 million in Q3.  This represents an increase of 5.23 percent compared with the same period the previous year.  In April 2016, Geometric announced agreements to transfer the majority of its business to HCL Technologies; with Dassault Systèmes acquiring full ownership of the HCL/DS joint venture, 3DPLM Software Ltd.  Geometric’s headcount was 4,800 at the end of Q3 2016.

HCL Technologies achieved total revenue of $1.7 billion for Q3, representing an 11.4 percent year-over-year growth rate.  Industry application services contributed 37.5 percent, infrastructure services 39.8 percent, business services 4 percent, and engineering and R&D services 18.6 percent.  Geographically, 61.9 percent of revenues came from the Americas, 29.6 percent from Europe, and 8.5 percent from ROW.  Vertically, manufacturing contributed 33.9 percent and financial services 24.3 percent.  Life sciences & healthcare contributed 12 percent, retail & CPG 9.4 percent, public services 11.2 percent, telecommunications 8.9 percent, and others 0.4 percent.  The total employee count in HCL was 109,795 in this quarter.  

Hexaware Technologies reported a total of $138.95 million revenues, representing 12 percent growth over the same quarter prior year.  Vertically, banking and financial services (the largest focus vertical for Hexaware) contributed 42.1 percent; manufacturing, consumer, and others 28.2 percent; healthcare and insurance 16.5 percent; and travel and transportation 13.2 percent.  Segment-wise, application development & maintenance (ADM) contributed 36.4 percent to the revenues, enterprise solutions 12.7 percent, quality assurance and testing services (QATS) 20.9 percent, business intelligence & analytics 14.1 percent, business process services (BPS) 6.8 percent, and infrastructure management services (IMS) 9.1 percent.  Hexaware’s employee count including trainees during the quarter stood at 12,115.  Hexaware added three new clients and signed agreement with TCV for $55 million in this quarter.

Infinite Computer Solutions reported total revenue of $93.10 million for the quarter ending December 31, 2016.  This represents an increase of 5 percent from the same period last year.  Vertically, telecom & media – a major contributor to Infinite’s revenues – contributed 35.8 percent, technology 38.4 percent, healthcare 23 percent, BFSI 1.1 percent, and others 1.7 percent.  Segment-wise, IT services contributed 78.2 percent, mobility 12.8 percent, and product engineering services 9 percent.  Geographically, US was the major contributor representing 90.2 percent of revenues, India 3.8 percent, APAC 5.2 percent, and Europe 0.8 percent.  Total employee strength was at 4,798 at the end of Q3.

Infosys reported $2,551 million revenues for the quarter ended December 31, 2016.  This represents 6 percent growth over the same period the prior year.  Infosys and its subsidiaries added 77 customers during the period.  Vertically, 33.3 percent of revenues came from insurance banking and financial services; 22.5 percent from manufacturing and hi-tech; 23.5 percent from retail and life sciences; and 20.7 percent from energy, utilities, and communication and services.  By business, IT services contributed 62 percent; consulting, package implementation, and others 32.4 percent; and products, platforms, and others 5.6 percent.  Geographically, 62 percent of revenues came from North America, 22.2 percent from Europe, 3.4 percent from India, and 12.4 percent from ROW.  Infosys and its subsidiaries had a total headcount of 199,763 employees at the end of December 2016.

KPIT reported revenue of $122.88 million for the quarter ended December 31, 2016.  This represents a decline of 0.45 percent year over year.  Geographically, the Americas contributed 70.09 percent to KPIT’s Q3 revenues, Europe 14.42 percent, and ROW 15.49 percent.  Vertically, automotive and transportation recorded 39.29 percent, manufacturing 37.20 percent, energy and utilities 14.07 percent, and others 9.44 percent.  Segment-wise, integrated enterprise solutions represented 29.55 percent of revenues, product engineering services 31.80 percent, products & platforms 3.89 percent, SAP practice 23.40 percent, and digital transformation (enterprise solutions) 11.37 percent.  The company added two new customers during the quarter, with total headcount of 11,881 employees at the end of December 31, 2016.

Mindtree reported revenue of $192.2 million for the quarter.  This represents 4.2 percent year-over-year growth in revenue.  Geographically, 68.7 percent revenues came from the Americas, 20.8 percent from Europe, 3.1 percent from India, and 7.4 percent from ROW.  Vertically, 36.7 percent of revenues came from technology, media and services; 24.1 percent from BFSI; 24.1 percent from retail, CPG, and manufacturing; and 15.1 percent from travel & hospitality.  Among service offerings, development contributed 22.3 percent, engineering 9.5 percent, maintenance 17.6 percent, infrastructure and support 20.3 percent, independent testing 12.6 percent, consulting 3.9 percent, and package implementation 12.4 percent.  Finally, IP-led revenue contributed 1.4 percent.  The company added 21 new clients and one $100 million client for the first time in this quarter.  The company’s employee strength was 16,099 at the end of December 31, 2016.

NIIT Technologies reported revenue of $103.17 million for the quarter ended December 31, 2016.  This represents a slight decline of 0.15 percent from the prior year.  Geographically, revenues from the Americas contributed 48 percent, EMEA 34 percent, and ROW 18 percent.  Vertically, banking and financial services was a major contributor to the revenues with 42 percent; travel & transportation 32 percent; and manufacturing, media, and others 26 percent.  Segment split is as follows – application development and management contributed 67 percent, business process outsourcing 5 percent, management services 17 percent, system integration and package implementation 4 percent, and IP assets 7 percent.  In Q3, the company added three new customers to its client list – two in the T&T and one in Others.

Persistent Systems reported revenue of $110 million for the quarter ended December 31, 2016.  This represents 22.6 percent growth compared with the previous year.  Services contributed 71.6 percent, while the IP-led business contributed 28.4 percent of Persistent’s business.  Segment-wise, infrastructure and systems contributed 43.9 percent to the total revenues, digital 16.9 percent, alliance 30.6 percent, and accelerite 8.6 percent.  Geographically, North America contributed 86.6 percent, Europe 5.3 percent, India 5.5 percent, and ROW 2.6 percent.

Ramco reported revenue of $16.96 million, with a decline of 3.9 percent growth in the third quarter.  Most of Ramco’s revenue came from markets outside India.  The company recorded a marginal decline in this quarter.

Rolta reported revenue of $135.5 million in Q3, representing a year-over-year decline of 9 percent as compared with the same period in the previous year.  Segment-wise, 22.9 percent of Rolta’s revenues came from enterprise geospatial & engineering solutions (EGES), while the remaining 77.1 percent came from system integration & enterprise IT Solutions (EITS).

Sasken reported revenue of $16.52 million for the quarter ended December 31, 2016.  This represents a decrease in revenue of 12 percent year over year.  Geographically, 31 percent revenues came from North America, 36 percent from EMEA, 27 percent from India, and 6 percent from APAC.  Services generated 78.7 percent of Sasken’s revenues with the rest coming from products.  Sasken group had a total headcount of 1,976 in this quarter.

Sonata reported total revenue of $91.1 million for the quarter ended December 31, 2016.  This represents a revenue increase of 14.9 percent year over year.  Segment-wise, 67 percent of revenues came from domestic (sales & services) and 33 percent from international (software service exports).  The company added three new customers during the quarter.  Geographically, 60 percent of revenues came from North America; 24 percent from Europe, including UK; and 15 percent from ROW.  Vertically, 30 percent of revenues came from outsourced product development (OPD); 26 percent from travel transportation and logistics (TTL); 27 percent from retail & CPG; and 17 percent from others.  The employee count stood at 3,314.

Tata Elxsi recorded $46 million in revenue for the quarter ended December 31, 2016.  This represents 12.9 percent growth year over year.  Segment-wise, 82 percent came from embedded product design, 13.1 percent from industrial design & visualization, and 4.9 percent from system integration & support services.

TCS quarterly revenue increased 5.8 percent year over year to $4.3 billion.  The company added two new customers in the $50M+ category and five customers in the $10M+ category.  North America contributed 55 percent and Latin America 2.2 percent.  Within Europe, UK contributed 13.3 percent and Continental Europe 11.1 percent.  India contributed 6.3 percent, APAC 9.6 percent, and MEA 2.5 percent.  Vertically, banking and financial services contributed 40.4 percent, retail & CPG 13.5 percent, telecom 10.6 percent, manufacturing 10.6 percent, hi-tech 5.4 percent, life sciences & healthcare 7.4 percent, energy & utilities 4.5 percent, travel & hospitality 3.8 percent, and other verticals 3.8 percent.  Segment-wise, IT solutions and services contributed 63.7 percent (application development & maintenance 37.2 percent, enterprise solutions & consulting 17.5 percent, and assurance services 9 percent); infrastructure services 16.8 percent; business process services 11.6 percent; engineering & industrial services 4.9 percent; and asset-leveraged solutions 3 percent.  The addition of 6,978 employees led to a total headcount of 378,497 at the end of the quarter.

Tech Mahindra reported combined total revenues of $1,116.1 million for the quarter ended December 31, 2016.  This represents 10 percent growth from the same period in the previous year.  Geographically, the Americas contributed 46.7 percent to Tech Mahindra’s revenues, Europe 29.4 percent, and ROW 23.9 percent.  Vertically, communication contributed 47.3 percent of total revenue (making it the largest contributor to Tech Mahindra’s business); manufacturing 18.4 percent; technology, media, and entertainment 6.4 percent; BFSI 13.1 percent; retail, transport, and logistics 7.6 percent; and others 7.1 percent.  Total active customers for the company stood at 837.  The total headcount of Tech Mahindra was 117,095 at the end of this quarter.

Wipro reported total revenue of $1.9 billion from IT services for the quarter ended December 31, 2016.  This represents a 3.5 percent growth from the same period previous year.  The IT services segment had 179,129 employees as of December 31, 2016.  Vertically, financial services contributed 25.5 percent of all IT revenues, manufacturing and technology 22.3 percent, global media and telecom 7.4 percent, energy and utilities 13 percent, healthcare & life sciences 16 percent, and retail and consumer goods 15.8 percent.  Geographically, the Americas contributed 55.5 percent, Europe 23.6 percent, India and Middle East 10 percent, with the remaining 10.9 percent coming from APAC and other emerging markets.

Zensar reported total revenue of $119.7 million for the quarter ended December 31, 2016.  This represents an increase of 4.2 percent from the same period previous year.  Segment-wise, 76.2 percent of revenues came from application management services and 23.8 percent from infrastructure management services (6.7 percent from maintenance and 17.1 percent from other services).  Geographically, 74.4 percent of revenue came from USA, 12 percent from Europe, 9.3 percent from Africa, and 4.3 percent from ROW.  Vertically, manufacturing contributed 51.8 percent, retail & distribution 25.2 percent; insurance, banking, and finance 19.4 percent; and emerging markets 3.6 percent.  Total employee count stood at 8,564, including the addition of 750 new employees at the end of Q3 2016-2017.

Conclusion

IT companies in India continued their growth path in the third quarter of FY16-17.  Some factors that contributed to this growth include acquisition and development of different business units; adoption of disruptive technology trends like social media, mobility, analytics, and cloud (SMAC); and enhanced focus on newer business models and emerging market segments.  Trends like Industrial Internet of Things (IIoT), automation-driven services, and virtualization also played important roles in the growth of India’s IT industry.  ARC believes that the market will continue the upward trend in the fourth quarter of FY16-17 as well.

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Keywords: IT (Information Technology), IT Services, Quarterly Supplier Revenues, Software Development, Business Process Outsourcing (BPO), ARC Advisory Group.