Q3’24 TWILTCH earnings show improvement as vendor consolidation continues

TWILTCH (TCS, Wipro, Infosys, LTIMindtree, Tech Mahindra, Cognizant, and HCLTech) represents 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. Looking at Exhibit 1, we see signs of life in the services industry as the average growth rate creeps up to 3.6% YoY—a slight improvement on the Q3 2023 average. While there is still a slowdown in enterprise discretionary spending, we are seeing large-deal momentum as vendor consolidation continues. This, combined with continued excitement around GenAI, is nudging the industry toward improvement.

Exhibit 1: Year-over-year revenue growth of TWILTCH providers in Q3 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 corresponding quarter of the previous year.
Source: HFS Research and the earnings reports of leading service providers, 2024

Growth in strategic transformation and cost optimization deals is fueling service providers’ quest to prepare for technology arbitrage

Conversations between HFS analysts and enterprise leaders reveal that vendor consolidation continues as enterprises prioritize large strategic transformation deals or those with cost optimization at the core. However, the nature of these deals means revenue recognition is typically slower than service providers might like—hence, the improvement is slight—so we expect to see these come to fruition and be reflected in future earnings reports.

Slow improvement is not deterring service providers, as they continue arming themselves for the technology arbitrage era. We’re seeing constant reports of service providers upskilling employees on GenAI, developing their catalogs of GenAI use cases, and building their own GenAI offerings. All of this is even though technology arbitrage has not hit scale yet. In addition, providers are putting boots on the ground in new markets, particularly the Middle East, as the region aims to position itself as a global leader in AI adoption.

US election results and interest rate cuts are positive, but they are not a magic pill

However, service providers and enterprises alike must move forward cautiously. The recent US election results brings uncertainty for any organization operating in the region, and we expect this will impact the TWILTCH group’s financial performance. At this stage, it’s difficult to quantify the impact and whether it will be overwhelmingly positive or negative, but expect to see some movement in their revenues.

On the other hand, the recent interest rate cuts in the US are welcoming news as we noticed some green shoots in BFSI deals and increased discretionary spending immediately following the announcement. Interest rate cuts are positive but not a magic pill. The picture in the coming years will remain complex and will be determined by several factors. Rate cuts are pleasing to IT services companies; but to truly thrive, the firms must reimagine their operating models and embrace the full potential of technologies such as AI and cloud. While headwinds remain, enterprises successfully pivoting from labor arbitrage to technology arbitrage stand to thrive.

Delving into the earnings announcements from the TWILTCH providers

• TCS reported 6.4% YoY growth in Q3 2024, driven by its Asia-Pacific and India regions and energy, resources, utilities, and manufacturing businesses. The large BSNL transformation deal led to growth in India and reflects TCS’ strategic decision to double down on emerging regions.
• Wipro reported a 1.7% YoY decline, driven by its energy, utilities, and manufacturing businesses, as well as Europe and APMEA. Leadership attributes much of this to seasonal furloughs, delays in signing large deals, and weaker demand in the automotive and industrial manufacturing businesses. Interestingly, we see green shoots in Wipro’s BFSI business, helped by its Capco acquisition and the impact of interest rate cuts.
• Infosys reported 3.7% YoY growth in Q3 2024, driven by its manufacturing, energy, utilities, resources, and financial services businesses. This results from strategic acquisitions, such as in-tech, and continued investment in cloud and AI. Infosys’ retail business did post a slight revenue decline, which leadership advised is due to geopolitical and economic tensions.
• LTIMindtree reported 4.8% YoY revenue growth in Q3 2024. This was driven primarily by its North America region and the high-tech, media, and entertainment industry vertical. The provider reports strong deal wins in manufacturing, energy and utilities, and BFSI, as well as continued investment in the Asia-Pacific and Middle East markets.
• Tech Mahindra reported 2.2% YoY growth in the quarter—a positive change after a sustained period of revenue declines. Leadership announced significant deal wins in its BFSI, communications and technology, and media and entertainment businesses. The Americas reported a 2.2% YoY revenue decline, but Tech Mahindra continues to invest in its European presence through its recent BPS center in Latvia.
• Cognizant reported 3.0% YoY growth in Q3 2024, driven by strong performances across its healthcare, financial services, and products and resources businesses. Geographically, Cognizant’s North America and Rest of the World regions reported growth, but its Europe business declined slightly due to the slowdown in discretionary spending.
• HCLTech reported 6.8% YoY revenue growth this quarter—the highest of the TWILTCH providers. Its telecoms, media, and publications vertical reported impressive 62.0% YoY revenue growth, driven by the Verizon deal. However, HCLTech’s leadership advised that project cancellations with certain European automotive clients and exiting from its State Street joint venture impacted other industries.

The Bottom Line: Vendor consolidation continues to impact TWILTCH providers’ financial performance—but overall, the industry is improving.

Enterprises continue reprioritizing their spending, leaning toward vendor consolidation and cost take-out to free up capital to invest in tools such as GenAI. TWILTCH providers must continue helping enterprises move beyond traditional labor arbitrage models to embrace emerging technologies—while being mindful of the changing macroeconomic environment due to recent election results.