IT fortunes shifting to Indian shores as clients move to execution stage

Mumbai: The last quarter of 2018 saw a shift in the fortunes of global and Indian information technology (IT) service companies. The former reported slower growth in order booking; domestic majors TCS and Infosys saw a strong deal momentum. This has driven their revenues and outlook.

This is true of a general shift, say analysts, as digital projects move from a consulting phase to actual implementation, where Indian players have a clear pricing advantage.

In the September-November quarter, Accenture’s consulting bookings remained flat at $5.9 billion; its total of order bookings at close to $10.2 billion was down two per cent from the earlier quarter. Both numbers came below analysts’ expectations.

In contrast, during the October-December quarter, TCS and Infosys reported strong bookings across divisions, surpassing analyst estimates.

In the early stage of their digital transformation, say analysts, companies tend to seek more hand-holding to chart their execution roadmap and strong consulting capabilities come into play. This is an area were the likes of Accenture, EY and McKinsey have a clear edge.

“If you look at Forrester’s 2019 predictions, we have noted that organisations are rapidly making a shift from large transformational changes to more pragmatic actions. As they grow confident about strategy, organisations seek to balance out the execution of downstream activities between different vendors,” said Ashutosh Sharma, vice-president at Forrester Research. Indian heritage providers, he says, have traditionally been very strong in execution, especially the tier-1 providers. So, they stand to benefit from this demand.

A recent JPMorgan report notes the book-to-bill ratio in Accenture’s bookings during the first quarter was 0.99, versus 1.14 last year, dropping below one for the first time in 13 quarters and stoking fear of a slowdown. The company attributed soft signings to difficulty in replenishing works after a period of strong bookings over the past few quarters.

Pareekh Jain, founder of Pareekh Consulting, says global players have been stronger in the consulting space but a competitive pricing strategy puts Indian companies at an advantage. “While the consulting phase would require an organisation-wide change (where global consulting expertise comes in), implementation would be more specific to technical/IT changes. If these clients seek different RFPs (Request For Proposals) for the consulting and implementation phases, there is scope for lower pricing in the second phase and these (domestic) companies have a competitive advantage here,” explains Jain.

During the third quarter, Infosys signed 14 large deals with total contract value (TCV) of $1.6 billion, split across regions (10 in North America, three in Europe) and divisions (four each in BFSI and manufacturing, two in communication).

Around 30 per cent of the signings were new. The management expects growth momentum to pick up in the coming quarters, led by ramp-ups in recent deal wins, which most analysts agree with. Infosys’ revised revenue growth expectation of 8.5-9 per cent (from the earlier six to eight per cent) for 2018-19 reflects this optimism.

The same momentum translated into unprecedented demand for larger rival TCS, which signed deals with a TCV of $5.9 billion. In fact, the company said, all the personnel (including sub-contracting staff) hired in the third quarter had all been deployed on projects which started as early as January 3 this year, at least two weeks earlier than the usual time.

“Definitely, the capital spending on core modernisation should continue. There is significant pent-up demand there and the technology imperative is also high,” said TCS' chief executive, Rajesh Gopinathan, during a post-results earnings call about client demand, especially in BFSI (banking, fnancial services and insurance). The company will be leveraging its strong execution capacity to meet these demands, said the management, to end the financial year with double-digit growth.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.