IT Industry in India Exhibits Above Average Growth

Summary

the IT Industry in India continues its upward momentum 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 second quarter of financial year 2017-18 and compare these with the same period the previous year.

This report discusses the financial results of the top 19 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 $14 billion, representing 8 percent year-over-year growth rate.  Only one out of the 19 companies reported year-over-year decrease in software or product revenues, while the rest showed growth in Q2.  The rupee minimally appreciated by 4.2 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 September 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 $36.74 million for the quarter ending September 30, 2017.  This represents a slight growth of 0.4 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 $150.1 million for the quarter ending September 30, 2017.  The revenues were up by 10 percent year over year.  Geographically, revenues from the Americas contributed 54.2 percent, EMEA 26.7 percent, while APAC and others contributed 19.1 percent. From the business unit perspective, contributors were – 34.7 percent from aerospace & defense; 11.2 percent from transportation; 8.6 percent from industrial, energy & natural resources; 4.1 percent from semiconductor; 2.2 percent from medical & healthcare; 15.9 percent from utilities and geospatial; and 23.3 percent from communications in this quarter.  Industry-wise, revenue was 23.6 percent from aerospace and defense, 20.7 percent from industrial, 9.3 percent from medical, 45.9 percent from communications, and 0.5 percent from others.  Cyient has added 27 new customers in this quarter. Cyient won an award for “Best Implementation” at the Field Service 2017 Technology Awards. Total employee strength was 13,568 at the end of this quarter.

HCL Technologies achieved total revenue of $1.9 billion for the first quarter, representing an 11.9 percent year-over-year growth rate. Industry application services contributed 35.9 percent, infrastructure services 38.5 percent, business services 3.6 percent, and engineering and R&D services 22 percent in this quarter.  Geographically, 62.4 percent of revenues came from the Americas, 29.1 percent from Europe, and 8.5 percent from the ROW.  Vertically, manufacturing contributed 35.4 percent to the growth of HCL, and financial services 25 percent.  Life sciences & healthcare contributed 11.7 percent, retail & CPG 9.3 percent, public services contributed 10.6 percent, telecommunications 7.9 percent.  The total employee count in HCL was 119,040 in this quarter.  

Hexaware Technologies reported a total of $154 million revenues, representing 13.9 percent growth over the same quarter prior year.  Geographically, the Americas contributed 79.1 percent; Europe contributed 11.3 percent and APAC contributed 9.6 percent in this quarter. Vertically, banking and financial services (the largest focus vertical for Hexaware) contributed 43.4 percent; manufacturing, consumer, and other 26.8 percent; healthcare and insurance 16.6 percent; and travel and transportation 13.2 percent.  Segment-wise, application development & maintenance (ADM) contributed 36.3 percent to the revenues, enterprise solutions 11.3 percent, quality assurance and testing services (QATS) 20 percent, business intelligence & analytics 13.8 percent, business process services (BPS) 7.3 percent, and infrastructure management services (IMS) 11.3 percent.  Five new clients signed in Q3 2017 with TCV of $43 million. Hexaware’s employee count including trainees during the quarter stood at 13,488.

Infinite Computer Solutions reported total revenue of $109.63 million for the quarter ending September 30, 2017.  This represents an increase of 31.5 percent from the same period last year.  Vertically, telecom & media – contributed 26.7 percent, technology a major contributor to Infinite revenues- contributed 47.2 percent, healthcare 20.9 percent, BFSI 0.7 percent, and others 3.8 percent.  Segment-wise, Technology Solutions contributed 83.6 percent, mobility 9.8 percent, and product engineering services 6.5 percent.  Geographically, US was the major contributor representing 89.2 percent of revenues, India 6.5 percent, APAC 3.9 percent, and Europe 0.4 percent.  Total employee strength was at 5184 at the end of the quarter. Infinite added fifteen new clients in this quarter.

Infosys reported $2,728 million revenues for the quarter ended September 30, 2017.  This represents 5.5 percent growth over the same period the prior year.  Infosys and its subsidiaries added 59 customers during the period.  Vertically, 33.4 percent of revenues came from insurance banking and financial services; 22 percent from manufacturing & hi-tech; 22.6 percent from retail and life sciences; and 22 percent from energy, utilities, and communication and services.  By service offering, business IT services contributed 62.3 percent; consulting, package implementation, and others 32.5 percent; and products, platforms, and solutions 5.2 percent.  Geographically, 60.6 percent of revenues came from North America, 23.2 percent from Europe, 3.3 percent from India, and 12.9 percent from ROW.  Infosys and its subsidiaries had a total headcount of 198,440 employees at the end of this quarter.

KPIT reported revenue of $142 million for the quarter ended September 30, 2017.  This represents a growth of 15 percent year over year.  Geographically, the Americas contributed 63.65 percent to KPIT’s Q2 revenues, Europe 18.50 percent, and ROW 17.85 percent.  Vertically, automotive and transportation recorded 43.32 percent, manufacturing 30.51 percent, energy and utilities 17.36 percent, and others 8.82 percent.  Segment-wise, integrated enterprise solutions represented 26.99 percent of revenues, product auto and engineering services 37.74 percent, products & platforms 4.17 percent, SAP practice 20.51 percent, and digital transformation (enterprise solutions) 10.59 percent.  The company added two new customers during the quarter, with total headcount of 11,946 employees at the end of September 30, 2017.

Mindtree reported revenue of $206.2 million for the quarter.  This represents 6.8 percent year-over-year growth in revenue.  Geographically, 67.6 percent revenues came from the Americas, 21.4 percent from Europe, 3.5 percent from India, and 7.5 percent from ROW.  Vertically, 36.7 percent of revenues came from technology, media and services; 24.7 percent from BFSI; 24.2 percent from retail, CPG, and manufacturing; and 14.4 percent from travel & hospitality.  Among service offerings, development contributed 22 percent, engineering 9.8 percent, maintenance 17.8 percent, infrastructure and support 19.9 percent, independent testing 12.4 percent, consulting 3.8 percent, and package implementation 13.1 percent.  Finally, IP-led revenue contributed 1.2 percent.  The company added 18 new clients in this quarter.  The company’s employee strength was 16,910 at the end of September 30, 2017.

NIIT Technologies reported revenue of $114.71 million for the quarter ended September 30, 2017.  This represents a growth of 10.9 percent from the prior year.  Geographically, revenues from the Americas contributed 50 percent, EMEA contributed 29 percent, and ROW contributed 21 percent.  Vertically, banking, insurance and financial services contributed the major revenue with 42 percent; travel & transportation 27 percent; and manufacturing, media, and other 29 percent.  Segment split is as follows – application development and management contributed 64 percent, business process outsourcing 4 percent, management services 18 percent, system integration and package implementation 6 percent, and IP assets 7 percent.  In Q2, the company added seven new customers to its client list –two in US, two in EMEA and three in APAC. The headcount was 9,022 at the end of this quarter.

Persistent Systems reported revenue of $118.1 million for the quarter ended September 30, 2017.  This represented 12.3 percent growth compared with the previous year.  Services contributed 74 percent while the IP-led business contributed to 26 percent of Persistent’s business.  Segment-wise, infrastructure and systems contributed 43.7 percent to the total revenues, digital 20.9 percent, alliance 27.3 percent, and accelerate 8.1 percent.  Geography-wise, North America contributed 83.4 percent, Europe 8.5 percent, India 5.6 percent, and ROW 2.5 percent.

Ramco reported revenue of $18.02 million with a growth of 7 percent in this quarter.  Majority of Ramco’s revenue came from markets outside India.  The company recorded an upward growth in this quarter.

Rolta reported revenue of $116.5 million in this quarter, representing a year-over-year growth of 2.6 percent as compared with the same period in the previous year.  Segment-wise, 20 percent of Rolta’s revenues came from enterprise geospatial & engineering solutions (EGES), while the remaining 80 percent came from system integration & enterprise IT Solutions (EITS).

Sasken reported revenue of $19.42 million for the quarter ended September 30, 2017.  This represents 10.5 percent revenue growth year over year.  Geographically, 38 percent revenues came from North America, 25 percent from EMEA, 30 percent from India, and 7 percent from APAC.  Services generated 77 percent of Sasken’s revenues with the rest coming from products.  Sasken group had a total headcount of 2,018 in this quarter.

Sonata reported total revenue of $66.43 million for the quarter ended September 30, 2017.  This represents decline of 14.8 percent year over year.  Geography-wise, 59 percent of revenues came from North America; 27 percent from Europe, including UK; and 14 percent from ROW.  Vertically, 29 percent of revenues came from outsourced product development (OPD); 27 percent from travel transportation and logistics (TTL); 26 percent from retail & CPG; and 18 percent from others.  Sonata added ten new customers in this quarter. The employee count stood at 3,628 in this quarter.

Tata Elxsi recorded $53.24 million in revenue for the quarter ended September 30, 2017.  This represents 17.2 percent growth year over year.  Segment-wise, 83.3 percent came from embedded product design, 11.5 percent from industrial design & visualization, and 5.2 percent from system integration & support services.

TCS quarterly revenue increased 8.3 percent year over year to $4.7 billion.  The company added one new customer in the $100M+ category, six new customers in $50M+ category, and six new customers in the $10M+ category in this quarter.  North America contributed 54 percent and Latin America 2 percent.  Within Europe, UK contributed 13.8 percent and Continental Europe 11.8 percent.  India contributed 5.8 percent, APAC 10.2 percent, and MEA 2.4 percent.  Vertically, banking and financial services contributed 33.6 percent, retail & CPG 13 percent, telecom 7.2 percent, manufacturing 7.3 percent, Technology & services 7.8 percent, life sciences & healthcare 7.8 percent, energy & utilities 3.7 percent, travel & hospitality 3.3 percent, and other verticals 17.1 percent. The addition of 3,404 employees led to a total headcount of 389,213 at the end of the quarter.

Tech Mahindra reported combined total revenues of $1.2 million for the quarter ended September 30, 2017.  This represents 10 percent growth from the same period in the previous year.  Geographically, the Americas contributed 45.3 percent to Tech Mahindra’s revenues, Europe 30 percent, and ROW 24.7 percent.  Vertically, communication contributed 43.7 percent of total revenue (making it the largest contributor to Tech Mahindra’s business); manufacturing 19 percent; technology, media, and entertainment 5.9 percent; BFSI 14.1 percent; retail, transport, and logistics 7.2 percent; and other 9.9 percent.  Total active customers for the company stood at 885.  The total headcount of Tech Mahindra is 117,225 at the end of this quarter.

Wipro reported total revenue of $2 billion from IT services for the quarter ended September 30, 2017.  This represents a 5 percent growth from the same period previous year.  The company added 41 new customers in this quarter. Vertically, financial services contributed 27.6 percent of all IT revenues, manufacturing and technology 22.8 percent, global media and telecom 6.5 percent, energy and utilities 13.5 percent, healthcare & life sciences 13.7 percent, and retail and consumer goods 15.9 percent.  Geographically, the Americas contributed 53.6 percent, Europe 25.1 percent, India and Middle East 9.9 percent, with the remaining 11.4 percent coming from APAC and other emerging markets. The IT services segment had 163,759 employees as of September 30, 2017.

Zensar reported total revenue of $118.6 million for the quarter ended September 30, 2017.  This represents a growth of 3 percent from the same period previous year.  Segment-wise, 83.1 percent of revenues came from application management services, 16.9 percent from infrastructure management services, 5.6 percent from maintenance, and 11.3 percent from other services.  Geographically, 72 percent of revenue came from USA, Europe 14.2 percent, Africa 9.9 percent, and ROW 3.9 percent.  Vertically, manufacturing contributed 48.7 percent, retail & distribution 28.9 percent; insurance, banking, and finance 19.2 percent; and emerging markets 3.2 percent.  Zensar has added 29 new clients in this quarter. Total employee count stood at 8,414, including the addition of 419 new employees at the end of this quarter.

Conclusion

IT companies in India continued their growth path in the second 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.