India IT Sector Continues Its Growth Trajectory

Summary

The India IT Sector continues its growth trajectory as most of the IT services companies covered in the report exhibited above-average growth.  In this report, we analyze the revenues of India’s IT services sector for the first quarter of financial year 2017-18 and compare these with the same period the previous year.  This follows closely ARC Advisory Group’s recent Insight on this sectors’ performance in the fourth quarter of FY 2016-17.

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 $13.7 billion, representing 6.4 percent year-over-year growth rate.  Only two out of the 20 companies reported a slight year-over-year decrease in software or product revenues, while the rest showed growth in Q1.  The rupee minimally appreciated by 3.1 percent during the quarter compared with the same period last year.

Supplier Revenues In India IT Sector

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 June 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 $36.9 million for the quarter ending June 30, 2017.  This represents a decline of 3.3 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 $124 million for the quarter ending June 30 2017.  The revenues were up by 8.6 percent year over year.  Geographically, revenues from the Americas contributed 60 percent, EMEA 24.6 percent, while APAC and others contributed 15.4 percent.  Cyient organized itself into eight business units effective from April 2016.  From the business unit perspective, contributors were – 38.7 percent from aerospace & defense; 10.3 percent from transportation; 10 percent from industrial, energy & natural resources; 4.3 percent from semiconductor; 1.9 percent from medical & healthcare; 15.8 percent from utilities and geospatial; and 18.9 percent from communications and others contributed 0.1 percent in this quarter.  Industry-wise, revenue was 16.3 percent from aerospace and defense, 32.9 percent from industrial, 12.3 percent from medical, 36.7 percent from communications, and 1.8 percent from others.  Cyient has added 22 new customers in this quarter. Total employee strength was 13,732 at the end of this quarter.

HCL Technologies achieved total revenue of $1.8 billion for the first quarter, representing an 11.4 percent year-over-year growth rate.  Industry application services contributed 36.3 percent, infrastructure services 38.6 percent, business services 3.6 percent, and engineering and R&D services 21.5 percent in this quarter. Geographically, 62.8 percent of revenues came from the Americas, 27.4 percent from Europe, and 9.8 percent from the ROW.  Vertically, manufacturing contributed 34.9 percent to the growth of HCL and financial services 24.9 percent.  Life sciences & healthcare contributed 11.8 percent, retail & CPG 9.5 percent, public services contributed 11.1 percent, and telecommunications 7.9 percent.  The total employee count in HCL was 117,781 in this quarter.  

Hexaware Technologies reported a total of $152.6 million revenues, representing 17.7 percent growth over the same quarter prior year.  Vertically, banking and financial services (the largest focus vertical for Hexaware) contributed 43 percent; manufacturing, consumer, and others 28 percent; healthcare and insurance 16 percent; and travel and transportation 13 percent.  Segment-wise, application development & maintenance (ADM) contributed 37 percent to the revenues, enterprise solutions 12 percent, quality assurance and testing services (QATS) 20 percent, business intelligence & analytics 14 percent, business process services (BPS) 7 percent, and infrastructure management services (IMS) 11 percent.  Hexaware’s employee count including trainees during the quarter stood at 13,098. Hexaware added five new clients with TCV of $40 million in this quarter.

Infinite Computer Solutions reported total revenue of $111.8 million for the quarter ending June 30, 2017.  This represents an increase of 39.9 percent from the same period last year.  Vertically, telecom & media contributed 25.5 percent.  Technology, a major contributor to Infinite’s revenues, contributed 49.2 percent; healthcare 22.2 percent; BFSI 0.2 percent; and others 2.9 percent.  Segment-wise, Technology Solutions contributed 85.2 percent, mobility 7.5 percent, and product engineering services 7.3 percent.  Geographically, US was the major contributor representing 90.2 percent of revenues, India 5.3 percent, APAC 4 percent, and Europe 0.5 percent.  Total employee strength was at 5,236 at the end of the quarter. Infinite added nine new clients in this quarter.

Infosys reported $2,651 million revenues for the quarter ended June 30, 2017.  This represents 6 percent growth over the same period the prior year.  Infosys and its subsidiaries added 59 customers during the period.  Vertically, 33.3 percent of revenues came from insurance, banking and financial services; 22.2 percent from manufacturing & hi-tech; 22.7 percent from retail and life sciences; and 21.8 percent from energy, utilities, and communication and services.  By service offering, business IT services contributed 62 percent; consulting, package implementation, and others 32.6 percent; and products, platforms, and solutions 5.4 percent.  Geographically, 61.1 percent of revenues came from North America, 22.4 percent from Europe, 3.6 percent from India, and 12.9 percent from ROW.  Infosys and its subsidiaries had a total headcount of 198,553 employees at the end of this quarter.

KPIT reported revenue of $134.4 million for the quarter ended June 30, 2017.  This represents a growth of 12.2 percent year over year.  Geographically, the Americas contributed 63.91 percent to KPIT’s Q1 revenues, Europe 18.82 percent, and ROW 17.27 percent.  Vertically, automotive and transportation recorded 40.79 percent, manufacturing 31.87 percent, energy and utilities 17.60 percent, and others 9.74 percent.  Segment-wise, integrated enterprise solutions represented 27.94 percent of revenues, product auto and engineering services 35.16 percent, products & platforms 5.50 percent, SAP practice 21.61 percent, and digital transformation (enterprise solutions) 9.78 percent.  The company added two new customers during the quarter, with total headcount of 12,261 employees at the end of June 30, 2017.

Mindtree reported revenue of $200.1 million for the quarter.  This represents 0.6 percent year-over-year growth in revenue.  Geographically, 69.6 percent revenues came from the Americas, 21.1 percent from Europe, 3 percent from India, and 6.3 percent from ROW.  Vertically, 37.9 percent of revenues came from technology, media and services; 25.1 percent from BFSI; 22.7 percent from retail, CPG, and manufacturing; and 14.3 percent from travel & hospitality.  Among service offerings, development contributed 22.6 percent, engineering 9.6 percent, maintenance 19 percent, infrastructure and support 21 percent, independent testing 11.8 percent, consulting 3.4 percent, and package implementation 11.5 percent.  Finally, IP-led revenue contributed 1.1 percent.  The company added 20 new clients in this quarter.  The company’s employee strength was 16,561 at the end of June 30, 2017.

NIIT Technologies reported revenue of $109.3 million for the quarter ended June 30, 2017.  This represents a growth of 9 percent from the prior year.  Geographically, revenues from the Americas contributed 49 percent, EMEA contributed 32 percent, and ROW contributed 19 percent.  Vertically, banking and financial services was a major contributor to the revenues with 42 percent; travel & transportation 29 percent; and manufacturing, media, and others 29 percent.  Segment split is as follows – application development and management contributed 66 percent, business process outsourcing 5 percent, management services 18 percent, system integration and package implementation 5 percent, and IP assets 6 percent.  In Q1, the company added nine new customers to its client list – five in US, one in EMEA, and three in ROW. The headcount was 8,963 at the end of this quarter.

Persistent Systems reported revenue of $113 million for the quarter ended June 30, 2017.  This represents 7.8 percent growth compared with the previous year.  Services contributed 72.8 percent while the IP-led business contributed 27.2 percent of Persistent’s business.  Segment-wise, infrastructure and systems contributed 44.5 percent to the total revenues, digital 18 percent, alliance 29.2 percent, and accelerate 8.3 percent.  Geography-wise, North America contributed 85.5 percent, Europe 5.9 percent, India 5.9 percent, and ROW 2.7 percent.

Ramco reported revenue of $17.6 million with a growth of 5.6 percent in the first quarter.  Majority of Ramco’s revenue came from markets outside India.  The company recorded an upward growth in this quarter.

Rolta reported revenue of $111.6 million in first quarter, representing a year-over-year decline of 6.7 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 $18.1 million for the quarter ended June 30, 2017.  This represents a stable revenue growth year over year.  Geographically, 37 percent revenues came from North America, 28 percent from EMEA, 28 percent from India, and 7 percent from APAC.  Services generated 79 percent of Sasken’s revenues with the rest coming from products.  Sasken group had a total headcount of 1,959 in this quarter.

Sonata reported total revenue of $211.3 million for the quarter ended June 30, 2017.  This represents a revenue increase of 8 percent year over year.  Geography-wise, 60 percent of revenues came from North America; 26 percent from Europe, including UK; and 14 percent from ROW.  Vertically, 30 percent of revenues came from outsourced product development (OPD), 28 percent from travel transportation and logistics (TTL), 24 percent from retail & CPG; and 18 percent from others.  Sonata added eight new customers in this quarter. The employee count stood at 3,575 in this quarter.

Tata Elxsi recorded $49.8 million in revenue for the quarter ended June 30, 2017.  This represents 12.7 percent growth year over year.  Segment-wise, 82.2 percent came from embedded product design, 13.3 percent from industrial design & visualization, and 4.5 percent from system integration & support services.

TCS quarterly revenue increased 5.2 percent year over year to $4.5 billion.  The company added one new customer in the $100M+ category, one new customer in $50M+ category, and 12 new customers in the $10M+ category in this quarter.  North America contributed 52.5 percent and Latin America 2.1 percent.  Within Europe, UK contributed 13.9 percent and Continental Europe 12.5 percent.  India contributed 7 percent, APAC 9.5 percent, and MEA 0.7 percent.  Vertically, banking and financial services contributed 32.9 percent, retail & CPG 12.2 percent, telecom 7.3 percent, manufacturing 7.5 percent, technology & services 7.9 percent, life sciences & healthcare 7.1 percent, energy & utilities 4 percent, travel & hospitality 3.5 percent, and other verticals 17.6 percent. The addition of 1,414 employees led to a total headcount of 385,809 at the end of the quarter.

Tech Mahindra reported combined total revenues of $1.1 million for the quarter ended June 30, 2017.  This represents 10.3 percent growth from the same period in the previous year.  Geographically, the Americas contributed 46.8 percent to Tech Mahindra’s revenues, Europe 29.8 percent, and ROW 23.4 percent.  Vertically, communication contributed 45.2 percent of total revenue (making it the largest contributor to Tech Mahindra’s business); manufacturing 19.3 percent; technology, media, and entertainment 6 percent; BFSI 14.4 percent; retail, transport, and logistics 6.8 percent; and others 8.3 percent.  Total active customers for the company stood at 864.  The total headcount of Tech Mahindra is 115,980 at the end of this quarter.

Wipro reported total revenue of $1.9 billion from IT services for the quarter ended June 30, 2017.  This represents a 2.1 percent growth from the same period previous year.  The company added 45 new customers in this quarter. Vertically, financial services contributed 26.7 percent of all IT revenues, manufacturing and technology 22.5 percent, global media and telecom 6.8 percent, energy and utilities 13.4 percent, healthcare & life sciences 14.8 percent, and retail and consumer goods 15.8 percent.  Geographically, the Americas contributed 54.5 percent, Europe 24.2 percent, India and Middle East 10.4 percent, with the remaining 10.9 percent coming from APAC and other emerging markets. The IT services segment had 166,790 employees as of June 30 2017.

Zensar reported total revenue of $114.3 million for the quarter ended June 30, 2017.  This represents a slight growth of 1.2 percent from the same period the previous year.  Segment-wise, 81.5 percent of revenues came from application management services, 18.5 percent from infrastructure management services, 6.3 percent from maintenance, and 12.1 percent from other services.  Geographically, 74.4 percent of revenue came from USA, Europe 13.8 percent, Africa 9.5 percent, and ROW 2.4 percent.  Vertically, manufacturing contributed 48.7 percent, retail & distribution 28.3 percent; insurance, banking, and finance 18.8 percent; and emerging markets 4.2 percent.  Zensar has added 44 new clients in this quarter. Total employee count stood at 8,567, including the addition of 606 new employees at the end of this quarter.

Conclusion

IT companies in India continued their growth path in the first quarter of FY17-18.  Nearly all the companies covered in the report registered above-average growth rate during this period.  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.  Technology trends like Industrial Internet of Things (IIoT), automation-driven services, virtualization, and digitalization also played an important role in the growth of India’s IT industry.  ARC believes that the market will continue to grow higher in the rest of FY18.

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