TWILTCH providers must embrace tech arbitrage to improve financial performances

TWILTCH (TCS, Wipro, Infosys, LTIMindtree, Tech Mahindra, Cognizant, and HCLTech) are India’s leading heritage IT and business service providers, which is why we often use their financial results as an indicator for market-wide performance. The latest Q2 2024 results show that ongoing cutbacks in discretionary spending, spend reprioritization, and high interest rates continue to impact the providers’ financial performance.

HFS has written extensively about how the industry is at an inflection point of jumping to a new S-curve of value creation. The traditional labor arbitrage model has become outdated, with AI-led technology arbitrage taking its place—and many expect this to be a key growth lever. However, the financial performance of the TWILTCH players suggests this shift is yet to become a reality at scale, as many companies are reporting single-digit revenue growth and even slight declines (see Exhibit 1).

Exhibit 1: Year-over-year TWILTCH revenue growth in Q2 2024

Source: HFS Research and earnings reports of leading service providers, 2024

Note: Revenue and growth data represents HFS estimates based on analysis of publicly available information. Year-on-year (YoY) growth compares a quarter with the same quarter of the previous year.

Enterprise excitement for GenAI has yet to translate into investment as budget balancing continues, but providers remain confident

Savvy enterprises continue investing in emerging technologies, particularly GenAI, to jump to the new technology arbitrage-driven S-curve, cementing their positions as leaders in their respective industries. However, the bleak macroeconomic environment presents uncertainties, as these investments are not the norm across the industry. Simply put, this means many enterprises are yet to translate the hype and excitement into reality at scale, causing a ripple effect on the service provider’s financial performance. That’s why it’s imperative that TWILTCH providers identify which enterprises are dedicated to driving value with tools such as GenAI and which are wrapped up in hype without clear direction.

Service providers remain confident about the future as they continue investing to cement their positions as market leaders. In particular, we’re seeing significant efforts to upskill workforces, expand GenAI capabilities, and diversify portfolios through geographic expansions. Coupled with investment in the right enterprise clients, financial performances could improve in the next 12-18 months.

Delving into the earnings of each TWILTCH provider

• TCS reported 3.9% YoY revenue growth, the second highest of the TWILTCH providers. Growth was driven by operations in India and its manufacturing business. Despite slowing revenue growth, TCS’ net sales are creeping up as smaller deals are deprioritized due to reduced discretionary spending. Additionally, TCS recently has won several multiyear deals, including Aviva, Europ Assistance, and Ramboll.
• Wipro reported a revenue decline of 5.3% YoY, the lowest of the TWILTCH providers, and its fourth consecutive quarter of revenue decline. The drop is seen across all of Wipro’s industries and geographies, except for Health and Americas 1, which reported 7.9% YoY and 1.7% YoY growth, respectively.
• Infosys reported 2.1% YoY revenue growth, driven by solid performance across most of its industry lines in Europe and other regions. Additionally, Infosys’s ability to sign a handful of large deals in recent quarters boosted its performance.
• LTIMindtree reported 3.5% YoY revenue growth, primarily driven by its North American business and high-tech, media, and entertainment vertical. This quarter saw LTIMindtree win a handful of key deals with a US-based airline, an insurance and retirement company, and a data center solutions provider. It’s also expanding its geographic presence into Saudi Arabia to improve resilience.
• Tech Mahindra reported a 2.6% YoY revenue decline, primarily due to the performance of its communications industry and in Europe. Leadership advised that Comviva, which it acquired in 2012, reported its typical seasonal decline, which is responsible for the performance of its communications business.
• Cognizant reported a 0.7% YoY revenue decline, mainly due to the performance of its product and resources vertical and downturns in Europe and other regions. Its recent Belcan acquisition is not yet reflected in the company’s top line, so that is one to watch for the rest of 2024. Cognizant also signed several large deals in recent quarters.
• HCLTech reported 5.1% YoY revenue growth—the highest among the TWILTCH providers. Its telecoms, media, and publications vertical posted 69% YoY growth, thanks to a $2.1 billion Verizon deal. Leadership advised that exiting its joint venture with State Street impacted its financial services revenue and headcount this quarter but will enable future investment in higher-growth areas.

The Bottom Line: TWILTCH providers must convince clients to embrace technology arbitrage and jump to the new S-curve of value creation.

As enterprises reprioritize spending, service providers are targeting large deals focused on cost takeout, efficiency gains, consolidation, and delivering on GenAI hype. But this alone won’t create the industry-leading financial performance TWILTCH providers crave.

The TWILTCH companies—and their peers—must lead enterprises beyond the traditional labor arbitrage model into embracing technology arbitrage. This approach will drive enterprises to a new S-curve of value creation. Forward-thinking enterprise leaders willing to take risks and enact change will win in this market. That’s why it’s increasingly critical for providers to build strong relationships with the right clients.