Surprisingly, the five fastest-growing service providers in Q1 2023 are some of the largest—not the smallest

Revenue growth of all the IT and business process service providers is stunted due to the painful one-two punch of inflation and recession and resulting in cautious spending by enterprises. Typically, smaller mid-tier players (providers with revenue between $.5 billion and $2 billion) grow faster than their larger peers. We observed this trend until the last quarter, Q4 2022, but that has changed. As investment in IT continued to fall, many of the larger players maintained higher growth while mid-tier providers’ growth slowed in Q1 2023.

Here we have delved into the financial reports of the five providers reporting the highest year-over-year (YoY) ^(1,2) growth rate in Q1 2023 vs. Q1 2022. The relatively higher growth in these five companies is driven primarily by bigger deals secured in the BFSI (banking, financial services, and insurance), manufacturing, and healthcare and life science segments. Enterprises searching for a new partner might want to keep a watchful eye on the five providers covered:

• Coforge: YoY revenue growth for Coforge is the highest among the top and mid-tier service providers at 13.8%. Coforge’s growth is primarily driven by its ruthless focus on only the BFSI and travel, transport, and hospitality industries, plus the acquisition of SLK Global, a business process transformation firm specializing in financial services. Our article discusses how Coforge’s strategy achieved this feat even during global economic turmoil.
• LTIMindtree: Its YoY revenue growth is the second highest this quarter at 11.9%, driven by growth in BFSI and manufacturing and resources industries. LTIMindtree’s growth is due to the synergies it gained from the LTI and Mindtree merger in Q4 2022. The merger provided the enhanced scale it needed to crack large deals and the complementary portfolios of LTI and Mindtree, diversifying the business to be more resilient to external threats, creating opportunities to cross-sell and upsell, and cementing relationships with existing clients.
• Capgemini: Its well-diversified business portfolio contributed to its overall revenue growth of 10.9%. The highest YoY growth came from manufacturing at 19%, not surprisingly its strength and biggest revenue contributor after the Altran acquisition, followed by double-digit growth in financial services, energy and utilities, consumer goods and retail, and services.
• HCLTech: YoY revenue growth diminished, ending at 8.1% in Q1 2023. Leadership advises that targeted acquisitions and the ability to expand within key accounts helped drive revenue growth. Its manufacturing, life sciences, and healthcare industries had the highest growth this quarter.
• TCS: With 7.5% YoY revenue growth, TCS’s growth slowdown has been less steep than its larger peers. Revenue from the UK has recovered with a growth of 8.4% in Q1 2023 vs. 3.6% in Q4 2022. Cloud, cybersecurity, enterprise application services, and cognitive business operations supported its performance.

The Bottom Line: Thanks to the current macroeconomic climate, finding a partner with solid financials and a viable business model could become increasingly important, and this list is a good place to start.

We typically expect mid-tier providers to dominate this list as their nimble approach continues to drive impressive growth rates. However, thanks to the global economic slowdown, providers with strong wins in BFSI, manufacturing, and healthcare and life sciences are on top. But that doesn’t mean you should write off the mid-tier. Their growth may have slowed, but there is still growth, and this list could look dramatically different come the next quarter.

Notes:
(1) 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.
(2) HFS considered Accenture, Capgemini, Coforge, Cognizant, Conduent, DXC, EPAM, EXL, Genpact, HCLTech, IBM, Infosys, Kyndryl, LTIMindtree, Mphasis, TCS, Tech Mahindra, and Wipro for this analysis.
Source: HFS Research and earnings reports of leading service providers, 2023

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