The Economic Times daily newspaper is available online now.

    Indian IT in FY15: What went wrong with TCS, Wipro & others as they struggled to grow revenues?

    Synopsis

    Chandrasekaran’s tone was reflective of the broader mood of India’s $146-bn IT industry, which endured one of its toughest years in recent memory.

    ET Bureau
    MUMBAI|BENGALURU: Natarajan Chandrasekaran is usually an epitome of quiet confidence and steely resolve.

    But on April 16, for the first time in years, the 51-year-old chief executive of Tata Consultancy Services was at a loss to explain India’s largest software firm’s quarterly performance and was unusually defensive while taking questions from journalists.

    Elevate Your Tech Prowess with High-Value Skill Courses

    Offering CollegeCourseWebsite
    IIM KozhikodeIIMK Advanced Data Science For ManagersVisit
    Indian School of BusinessISB Professional Certificate in Product ManagementVisit
    MITMIT Technology Leadership and InnovationVisit
    Chandrasekaran’s tone was reflective of the broader mood of India’s $146-billion information technology industry, which endured one of its toughest years in recent memory.

    The previous financial year brought a host of challenges for Indian IT companies as growth faltered and their earnings failed to satisfy the markets. With clients continuing to hold on tightly to their purse strings and the market for large deals becoming more competitive, 2015-16 will be a make or break year for a number Indian IT CEOs.

    Even industry leader TCS, which has stayed ahead of rivals in the past, stumbled in the financial year that ended in March. After years of outperformance, the company just met the upper end of industry body Nasscom’s growth estimates for the year, in reported currency, as sectors such as telecom, energy and insurance played spoilers.

    Infosys, Wipro and HCL Technologies fared worse.

    ALL ABOUT MARKET SHARE

    Despite enduring its worst March quarter in years, TCS added a little over $2 billion in incremental revenue in fiscal 2015. HCL Tech made $642 million, Wipro pulled in $463 million and Infosys, $462 million.

    TCS’ growth often has been attributed to its ability to stay agile even as headcount exceeds 300,000. Chandrasekaran thinks the company needs to do more to retain that edge.

    “Structure is never constant. You may have to have different structures for units that are more manpower-dependent, and those that can become more automation-dependent. I know the outlines, but I cannot say when we will have to put those in,” Chandrasekaran told ETin an interview earlier this month.

    Wipro and Infosys have already reshuffled organisational structures.

    Wipro recently hired TCS’ Abid Ali Neemuchwala to improve delivery, and Infosys has reworked its reporting lines to unify its operations. HCL Tech has also reworked leadership of its infrastructure management unit.

    Efficiency in delivery is becoming key, as companies deal with new technologies spawning new kinds of competition, especially from smaller players in highly specialised local markets.

    “There is a shift in market competition,” Anant Gupta, CEO at HCL Technologies, said in an interview last week. “Historically we've always been saying competition is the big American firms, big European firms. But now there are also niche local regional players who are going in there.”

    EMERGING STRUGGLES & THE CUSTOMER

    The 2014-15 financial year will go down as the year when the industry started to see the first real impact of the emergence of technologies such as cloud computing and analytics. India’s top software firms struggled to grow revenues from traditional, commoditised businesses such as application development and maintenance and infrastructure management, as top customers like Citigroup and General Electric that are undergoing large-scale technology transformations shift spending towards emerging technologies.

    Smaller specialised firms also come with consulting capabilities, enabling them to have the kind of conversations clients want, say experts.

    Large customers such as US discount retailer Target Corp, agriculture conglomerate Cargill and home improvement chain Lowe’s are asking Indian IT companies to make large-scale transformations fast.

    “For Indian tech vendors, rather than coming to us and saying this is what we can do, they should come to us and say these are your business problems and we have these solutions for you,” said Narayan Ram, managing director of Lowe’s India.

     

    Experts say few Indian players have that capability as yet. “What Indian service providers need to do over the next five years, from a leadership perspective... (is) go to their customers and tell them, ‘this is what you need to do’,” said Fred Giron, analyst at Forrester Research. “No service provider today, especially traditional service providers, is able to have these kinds of conversations with their clients.”

    WHAT’S AT STAKE FOR TOP CEOS?

    In the ongoing fiscal, a lot will be at stake for Wipro CEO TK Kurien, who has over the past four years struggled to get the company back to double-digit, industry-level growth rates despite undertaking large-scale organisational overhauls and increasing its kitty of $100-million deals.
    Image article boday

    Experts tracking Wipro said the company’s biggest issue is it lack of consistency and inability to get all their engines firing together across verticals. Kurien, for his part, remains confident that Wipro will get back on the saddle this financial year and start gaining back ground lost to larger peers. “What we’ve seen is year after year we’ve been improving. This year, we don’t know which way oil and gas will go. If you take out that stress segment, I would say overall our growth will be better than last year,” Kurien said during a post-earnings press conference last week.

    Even for Vishal Sikka, who has now helmed Infosys for a little over three quarters, investors will expect him to walk the talk and resurrect the fortunes of the former industry bellwether, especially after a disastrous March quarter that saw the company’s revenues decline sequentially across all geographies and verticals.

    “The world as I see is one of people surrounded by technology,” the Infosys CEO said in an investor call on Friday. “New areas in Infosys of automation and innovation will constitute a tenth of total revenue by 2020.”

    GROWTH PLAN: ACQUIRING CAPABILITIES

    Indian IT firms in recent years have become open to buying new capabilities.

    And Infosys has thrown down the gauntlet in terms of acquisitions to make good on its aspirations.

    “By 2020, our revenues will be $20 billion with a 30% margin and revenue per employee at $80,000,” Sikka said, indicating that about $1.5 billion would come from acquisitions. Infy has already bought two firms this year – automation provider Panaya and mobile commerce player Kallidus.

    “I expect all of them will get more aggressive in acquisitions. After Cognizant and Trizetto and now Infosys, not being more aggressive would be a problem,” said an investment banker with a boutique firm. Cognizant acquired healthcare IT firm TriZetto last year for $2.7 billion. “I don’t think too many deals would be Trizetto level. They would be smaller deals, midsized, to add capabilities,” this banker said, declining to be identified. All leading Indian IT companies are making investments in automation and robotic process management.

    TCS has announced a service-as-asoftware platform it is currently piloting, and Infosys recently bought automation startup Panaya. At Wipro, about 200 executives are building automation platforms. Kurien has told analysts that in three years, people deployment will drop by 35% for some aspects of delivery as the company uses ‘hyper-automation’ to reduce costs.

    Experts say Indian IT companies will have to do more and hire external talent to get the necessary skills to deploy a higher level of automation if they are to compete with the likes of Accenture, which pulls in more than $50,000 in revenue per employee.

    “I think companies need to infuse their management bench with more skill sets from people that have done this before,” said Sandra Notardonato, vice president-research at consultancy firm Gartner. “I think all companies should be looking to bring in people to challenge them (and) think about the direction the industry is going.”

    For now, anxious investors will be hoping that 2014-15 was just an anomaly.

    The larger signs—including Gartner’s tepid forecast on worldwide technology spending — indicate that it probably is not.

    (With inputs from Neha Alawadhi in New Delhi)

    Read More News on

    Read More News on

    The Economic Times

    Stories you might be interested in