India’s leading Information Technology (IT) firms have begun to build substantial momentum on the digital business side of things, considering that most of the country’s IT services giants were relatively recent entrants to the segment.
With financial year 2018-19 having drawn to a close last week and corporate results for the last quarter set to be announced in a matter of days, how well the digital segment performed will play a significant role in their overall fortunes for the quarter and the full financial year.
The importance of the relatively new business, which most leading Indian firms began focusing less than five years ago, can be best illustrated by their financials for the quarter ended December 2018.
For Infosys, Tata Consultancy Services (TCS) and Wipro — three of India’s largest IT companies — the share of digital business in overall revenues has crossed the 30 per cent mark (See graph).
Over the last few years, India’s IT firms had begun investing resources in specific digital products, particularly those boasting artificial intelligence (AI) and automation capabilities.
The coming of age of these AI and automation products — from Infosys’ Nia to Wipro’s Holmes — has been accompanied by increased traction from clients who are in the process of digitalising their own businesses to increase efficiencies and reduce manpower costs.
For TCS, out of a total revenue of Rs 37,338 crore, the digital segment accounted for a robust 30.1 per cent (Rs 11,238 crore) and grew at a whopping 52.7 per cent year-on-year.
The numbers for rivals Infosys and Wipro were no less impressive. The former saw digital business grow at 33.1 per cent, contributing to 31.5 per cent of its Rs 21,400 crore revenue pile. For Wipro, digital revenue stood at 33.2 per cent of its total Rs 15,060 crore revenue and grew at 35.4 per cent.
Other Indian firms have also managed to ramp up the share of digital services in their overall revenues. A recent Nasscom report states that the Indian IT services sector has seen a steady rise in digital revenues, with the segment expected to contribute a whopping 38 per cent by 2025. The digital segment already contributes around 18 per cent of the Indian IT sector’s revenues.
This was primarily due to how the digital services capabilities of Indian firms have matured over the last half a decade. According to a February report from ratings agency ICRA, the sector is expected to see around 7-9 per cent growth in the new financial year (FY20) primarily due to demand for digital services.
“The earlier small-scale proof of concept digital projects has started evolving into enterprise level larger implementations coupled with improvement in discretionary spend supporting future growth,” ICRA vice president Gaurav Jain had noted.