Top-tier IT firms have also underperformed their mid-sized Indian peers, and even some other global firms
Top-tier IT firms, instead, will now have to focus on automation and pricing improvements if they are to protect their margins and their competitive turf
Global information technology firm Accenture Plc. has always given top guns in Indian IT a run for their money. However, given the company’s large revenue base, its percentage growth rates have lagged those of Indian firms, who have always seen an increase in market shares.
However, the company’s fortunes seem to have turned in the 12 months ended December 2018. Indian Tier I IT firms lost market share in dollar terms to Accenture, shows an analysis by Nomura Financial Advisory and Securities (India) Pvt. Ltd.
Accenture grew its revenues by 13.37% in the 12 months till December. Indian Tier I IT firms, in contrast, increased their revenues only by 8.54% in the past year.
“Market share gains have been coming off over the past four years," said Nomura in a note to clients. “We expect around 8% constant currency (CC) revenue growth for tier 1 IT in FY20 (vs Accenture’s guidance of 6-8% in constant currency terms for FY20)."
This heralds a tough fight for Indian firms to retain share this year as well.
Tata Consultancy Services Ltd, the best performing company among large Indian IT firms, grew revenues by around 10% in the 12-month period, which is lower than Accenture’s growth rates.
Analysts attribute the slowing growth to the lower digital exposure of Tier I companies, which is leading to slower revenue growth, despite strong spending in the US. The digital revenues of Tier I IT companies comprise just 30% of their overall revenue pie, compared to Accenture’s 60%.
Top-tier IT firms have also underperformed their mid-sized Indian peers, and even some other global firms. Mid-sized IT companies grew 14% in the December quarter, whereas second-rung global IT firms grew 17%, Nomura’s analysis shows. This was much higher than the growth of 8% reported by the top-tier firms for the quarter.
Besides, a string of top Indian IT companies have also undershot analysts’ expectations of margins. This is because there have been increases in on-site wage costs as a result of the new immigration policies in the US.
Pricing pressures were also seen in the legacy business. The coming quarters could continue to be a challenge for the top IT firms. Analysts see traditional operating levers such as labour arbitrage and softer rupee slowly fading.
Top-tier IT firms, instead, will now have to focus on automation and pricing improvements if they are to protect their margins and their competitive turf.