TCS, Infosys are best placed, to tap into the SAP migration cycle- Jefferies
- Stock Market Today: TCS and Infosys, as per Jefferies are best placed to tap into the SAP migration cycle, with 76-77% of their SAP revenues coming from implementation services. Wipro, Tech Mahindra and LTIMindtree also derive ~69-71% of SAP revenues from implementation, with Wipro to benefit more.
Tata Consultancy Services (TCS) , Infosys share prices have gained 18-20% from October lows. The overall investor sentiments have improved with expectations of the US interest rates likely to have peaked leading to easing concerns on global slowdown.
As analysts remain optimistic on earnings catching pace in few quarter , there are several opportunities that can help improve growth prospects.
Analysts at Jefferies India Pvt Ltd in their recent report said that Indian IT companies are well placed to ride the SAP wave
SAP, the leading vendor of ERP (Enterprise Resource planning) applications, plans to end the mainstream support of its ERP Central Component (ECC) version by 2027 with an option to extend till 2030 for an additional fee. In the future, SAP will only support its next- generation ERP system, SAP S/4HANA, and has committed to support this at least until 2040.
This as per Jefferies is an opportunity for IT services firms.
Given the deadline by SAP, enterprises need to choose among either maintaining their existing SAP platforms, modernizing the SAP version or shifting to another ERP platform.
Jefferies analyts highlight that even after four years since SAP's initial announcement, only 1/3rd of the ECC organizations have decided to modernize to S/4 HANA, suggesting that the pace of adoption has been slow. However, it is likely that organizations will modernize or shift to another ERP platform by 2027-30 which, in turn, would probably present growth opportunities for IT services firms.
The SAP S/4HANA Application services market is a $30bn market, and forms 9% of the overall application services market. The market grew by 23% YoY in 2022, more than 2 times the overall IT services market.
TCS and Infosys as per Jefferies are best placed, in their view , to tap into the SAP migration cycle, with 76-77% of their SAP revenues coming from implementation services.
Among others Wipro, Tech Mahindra and LTIMindtree also derive ~69-71% of their SAP revenues from implementation, but Wipro being a bigger player, may benefit more, said analysts at Jefferies. Indian IT firms (led by Wipro) are also well-placed for a move to an alternate ERP like Oracle, said Jefferies analysts.
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