BENGALURU: Despite a substantial decline in profits the leading IT service providers witnessed in the quarter gone by ( April- June FY 21), the sector is headed for a strong comeback even as the overseas markets still remain challenged by the Covid pandemic. Industry experts expect tier 1 and mid-tier IT service companies to post a marginal growth in the range of 3-5% quarter-on-quarter (QoQ), although the revenues as well as profits will nowhere be close to what was seen last year. The wave of lay-offs triggered by the pandemic in the industry is also likely to stabilise in the next few months, as financials improve.
Companies like Infosys, HCL Tech have already provided their revenue guidance for the quarter ended September FY21 and are hopeful of increased revenue growth as well as net profits on the back of strong deal pipeline and demand for digital services. The acceleration of digital transformation of enterprises catalysed by the Covid pandemic along with cost-cutting measures have brought back the demand for IT services, especially in the cloud, automation, artificial intelligence and remote working domains.
IT bellwethers, TCS, Infosys and Wipro, have been bagging large deals from overseas markets like the UK, US, Middle East and South Africa to help businesses undergo digital transformation, as warranted in the pandemic situation. Even mid-tier companies like L&T Infotech, Mindtree, Happiest Minds etc have reported a strong deal pipeline, even as the client base has not seen a substantial increase.
Bengaluru-headquartered Infosys had earlier announced a multi-year contract with a Brazilian firm, Vanguard reported at around $1.5 billion. The company announced that its deal size for the first quarter of FY21 stood at $1.74 billion. “Although the pandemic has led to a disruption in the IT industry and the deal size has been affected, the company still has a robust deal pipeline,” Infosys CEO Salil Parekh said.
‘IT industry will return stronger than expected’
“There is a huge client traction in areas like automation, cloud services, cybersecurity, workplace transformation etc,” added Infosys CEO Salil Parekh during an earnings call.Interestingly, the valuations of smaller firms have also dropped significantly in a recessionary economic environment, leading to mergers and acquisitions in the sector. The cash-rich leading IT companies are eyeing opportunities
to acquire smaller firms in the overseas markets in niche verticals for efficient client service.
“The IT industry will come back stronger than expected and some of the companies like Infosys, HCL Tech and even mid-cap firms may perform better than estimates. Even though verticals like Banking Finance, Insurance, Retail and Hospitality will remain affected, digital revenues will be a key to the IT industry alongside health, life sciences and education sectors. Smaller and medium cap firms may also do reasonably well because of their ability to clinch deals with lesser price valuations in the digital arena,” Pareekh Jain, an industry analysts based in Bengaluru, told The New Indian Express.
Wipro’s Q1 net reported a flat growth of 0.1 % year on year at Rs 2,390 crore
The company’s consolidated revenue stood at Rs 14,913 cr, a rise of 1.3 %
Infosys posted a net profit of Rs 4,233 cr in Q1
HCL Tech reported a 32% increase in the net profit for Q1