It's time for TCS, Wipro, and Infosys to say goodbye to double-digit growth forever
Sitting idle and watching the world go swiftly by is certainly not the answer for Indian IT's growth dreams. (Image: TCS)
The results from the most recent quarter that ended in June 2017 are just in and there are no surprises here amongst the big three in Indian IT.
TCS, India's largest IT services company, posted a 5.2-percent growth in revenues (in dollar terms versus a year ago) as well as a 7-percent drop in net profit. Mint newspaper, observing that it was the company's "11th consecutive quarter when the company has either under-performed or at best managed to match analysts estimates" called it a result of "unimaginative leadership" in a separate piece, which is an understatement considering TCS hasn't engineered even one acquisition in recent memory to get itself a leg up in acquiring digital clients.
Infosys you may argue is stewarded by someone with, by comparison, a little more imagination, in the guise of former SAP wunderkind Vishal Sikka, and the firm did do better by growing its dollar revenue by 6 percent from a year ago. However, the company elicited unnecessary excitement mainly because of its revised revenue outlook for 2017 to 2018 (7.1 to 9.1 percent), which was in direct contrast to the three consecutive quarters that it has reduced its full-year revenue forecast.
Things have been so bleak for the industry this year that Wipro fans seemed happy with the 3.4-percent growth (in constant currency) for the year despite coming in at around half of its other two rivals numbers.
How bad are these single-digit growth rates?
Well, only two years ago or so, these companies were barreling along at growth rates excess of 20 percent and indeed were expected to do so for the interminable future. They were the luminous stars in the Indian global business landscape and represented the immense possibilities for home grown businesses that could wade into foreign waters and make a name for themselves.
A NEW WORLD
All that has come crashing down in dazzling speed in the past two years, as the cloud and digital solutions have tightened the noose around easy money from mega infrastructure maintenance, app development, and support projects. Suddenly, the money is less, the deals are numerous (albeit in smaller sizes), and sales models across the IT services landscape are going through turmoil.
Is this such a bad thing though?
"I don't want to burst any bubbles but 5 percent growth rate is pretty good," Phil Fersht, CEO and chief analyst at UK-based research firm HfS, told ZDNet. "You can stay positive. A lot of the western providers are happy with 2 to 3 percent. Their growth will flatten and even decline so the focus will now be on profitability and margin maintenance."
Indian IT doesn't really have any options. Lukewarm business from one of their main customers -- banks -- has contributed to measly growth numbers. Infosys saw a paltry 1.3-percent and 3.1-percent growth in Europe and the US, respectively. TCS suffered a similar fate.
Clients today are increasingly looking for digital solutions powered by data analytics and massaged by smart consulting wings looking to constantly keep their clients on a winning edge. Indian IT is still trying to claw its way into contention here while milking the quickly dying fountain of maintenance and app development for its every drop.
Of course, one way to ramp up revenues is by making acquisitions like Accenture has done. The firm has spent more than $900 million in each of the past two years for over 50 companies, 15 of which were made in the last year and boosted its 6-percent growth number by two whole percentage points. Not surprisingly, Accenture may well outstrip its Indian rivals by posting a predicted 6.85 percent in 2018, despite being substantially larger in size.
Gobbling up firms pell mell to grow business may not be the best strategy around -- there may very well be digestive problems at Accenture stemming from integrating such a vast array of small businesses with ostensibly different cultures, as industry rumours seem to insinuate.
However, sitting idle on vast stockpiles of cash and watching the world go swiftly by is certainly not the answer for Indian IT's growth dreams.
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