The TWILTCH providers (Tech Mahindra, Wipro, Infosys, LTIMindtree, TCS, Cognizant, and HCLTech) represent the leading India-heritage IT and business service providers. Their financial results are often considered a good indicator of how the market is performing. The latest quarterly results show a further slowdown in revenue growth, well into very low single digits or even negative growth, driven by enterprises reducing discretionary spending, taking longer to sign deals, and implementing seasonal furloughs.
Yet all IT service providers remain optimistic about meeting their mid- to long-term adjusted targets on the back of investment and reliance on technology by enterprises, as evident in announcements of large and mega deals, some of which we have outlined below. These deals need some planning runway before they can affect service providers’ revenue growth. These IT service providers must fulfill the enterprise’s need to create new business value beyond cost optimization and labor arbitrage from the latest tech investments and a recent surge of interest in generative AI.
We delved into each provider’s recent financial reports(1) and found:
- Tech Mahindra: In Q3 2023, Tech Mahindra reported a -5.1% YoY revenue decline, the biggest drop across all TWILTCH providers. The slowdown occurred across all industries and geographies. Most impacted were revenue growth in communication and BFSI. Tech Mahindra is reorganizing by creating six strategic business units (including Americas Communication, EMEA, APJ, and India) and large deal capacity within each, along with a central deal capability to identify patterns and opportunities. Tech Mahindra leaders believe the move will lead to greater client intimacy and agility and allow it to focus its investment on key technologies and sectors. In Q3 2023, it won $640 million of large deals from a US e-commerce giant, an EU-based fintech, large telco operators in the EU and US, an Indian bank, and a large US freight carrier.
- Wipro: Wipro reported a revenue decline of -3.1% YoY in Q3 2023, down from 8.4% YoY in Q3 2022. Revenue took a hit in all regions and industries due to the macroeconomic slowdown, reprioritization of client spending, and higher volume of furloughs. The most impacted industries are communication and BFSI; however, health was an exception, growing at 7.9% YoY. It has booked several large deals (deals worth more than $30 million) with a total contract value (TCV) of $1.3 billion with a global bank, a multinational healthcare and insurance firm, a European multinational telecom company, and a US-based health insurer.
- Infosys: Infosys’ YoY revenue is on a downward trajectory from 20.7% to 13.9% to 3.6% YoY in Q3 2021, 2022, and 2023. Its biggest industry vertical, financial services, is most impacted, followed by communications and high tech. Nearly flat growth is noted in all regions except Europe, where revenue grew at a steady 10% YoY. Infosys showed a positive YoY revenue growth rate in life sciences (20.6%), manufacturing (15.7%), and retail (10.9%) verticals. This can be attributed to exploiting opportunities in cost consolidation, infrastructure transformation, and capabilities in digital transformation, cloud ERP, supply chain, and smart factories. Six large deals were signed in retail, five in manufacturing, four in telecom, three in financial services, two in life sciences, and one in the energy, utilities, resources, and services vertical. The TCV of these deals is $7.7 billion.
- LTIMindtree: LTIMindtree continues to have the highest YoY revenue growth in Q3 2023 (5.2%) among the TWILTCH service providers, but it has slowed compared to the previous quarter (11.9% YoY in Q2 2023). The slowdown is observed across all industries and regions except manufacturing and Europe. The merger of LTI and Mindtree has expanded its capability to bid for large and mega deals. It is also growing its existing accounts by cross-selling and up-selling to them. It has signed several deals this quarter with a TCV of $1.3 billion. Some examples are deals with the world’s largest semiconductor manufacturer, a US apparel retailer, a US insurance and retirement major, and a US restaurant chain.
- TCS: This quarter, again, TCS managed to stem the slowdown in its revenue growth; the decline was less steep for TCS when compared to its peers. Its year-on-year revenue growth in Q3 2023 was 4.8% YoY vs. 7.5% YoY in the previous quarter. Revenue growth in its biggest market, North America, and across all industries (except manufacturing, life sciences, and healthcare) witnessed a significant slowdown. It bagged several mega and large deals with TCV of $11.2 billion, including two mega deals worth $2.8 billion from BSNL and JLR.
- Cognizant: There was a slight uptick in YoY revenue growth (0.8%), but the overall revenue has plateaued at around $4.8 billion in the last two years. However, the slowdown is noted in all regions and industries except Europe, which grew by 9.7%. The decline in revenue growth is most notable in the financial services industry (-3% YoY). It booked three large deals exceeding $100 million each.
- HCLTech: Year-on-year revenue growth slowed to 4.6% in Q3 2023, down from 10.4% in Q3 2022. The slowdown was due to declining deals in technology and telecommunication business units; growth in financial services, retail, healthcare, and life sciences was positive. Growth is stable in Europe but slowed down in the Americas and the rest of the world. However, bookings reached $3.9 billion, including one mega deal with Verizon Business worth $2.1 billion.
The Bottom Line: Enterprises are being tight-fisted and drastically cutting down on discretionary spending due to unfavorable economic conditions. Large deals are driving optimism among some IT service providers regarding meeting their mid- to long-term adjusted revenue targets, driven by big bets on AI, cloud, and data capabilities.
For enterprises, leading providers have an interesting value proposition to navigate the rapidly changing technology ecosystem and drive real business value, particularly if they are interested in the excitement around generative AI.
Enterprises continue to milk existing IT projects by focusing more on efficiency, optimization, and faster return on investment while taking a cautious approach to new deals. This is leading to an increase in operating model transformation deals, vendor consolidation, and large outsourcing deals. Service providers are ramping up their AI, cloud, and data-related capabilities, improving their utilization rates and internal productivity by transforming operations by percolating AI solutions throughout the organization.
Enterprises that want to realize the benefits of technology in their business and remain competitive should find the right balance of the digital dichotomy, where enterprises are striving to balance the macroeconomic “slowdown” with the “big hurry” to innovate to create new streams of revenue over and above cost optimization and productivity benefits.
Note: (1) Revenue and growth data represents HFS estimates based on analysis of publicly available information. The year-on-year (YoY) growth compares a quarter with the same quarter the previous year.
Source: HFS Research and earnings reports of leading service providers, 2023
