Clients’ demands for a digital overhaul of their businesses – to mitigate disruptions of the kind they suffered during the pandemic – is leading to a surge in orders for Indian IT services companies. It’s also enabling the latter to quickly lift themselves from the early pandemic lows.
In a seasonally weak quarter, which is marked by the holiday season and furloughs, Infosys grew by 5.3% sequentially, while Wipro grew by 3.4%, which nearly met the top end of its revenue guidance for the quarter. Year-on-year growth rates are significantly better than in the first two quarters, and look to be fast heading towards pre-Covid levels.
Like TCS, which reported its results last week, the healthy numbers were attributed to growth across business verticals, as also large deals. Deals are getting larger as clients are consolidating vendors and are spending more on newer technologies like cloud and cyber security to support their shift to remote work. The total contract value of large deals for Infosys was $7.1 billion, while Wipro closed 12 large deals worth $1.2 billion in the quarter.
“We are ready to participate in all these (large deals) and have our capabilities ready. The large deal wins give us confidence for the quarter ahead,” Infosys CEO Salil Parekh, who completed three years at the helm, said.
For Wipro too, the growth was broad-based – across sectors and markets. “We have had a second consecutive quarter of strong performance with healthy growth in revenues, acceleration in order booking, expansion of margins, a sustained lower employee turnover and solid operating cash flows,” said CEO Thierry Delaporte.
The Q3 numbers led Infosys to raise its revenue guidance for the second time this fiscal and the company now expects to grow between 4.5-5% for the full year, up from 2-3% guided earlier. “We expect to report double digit growth in the next fiscal,” Parekh added. Wipro, which only provides quarterly guidance, has guided for fourth quarter growth of 1.5-3.5%.
Operating margins improved sharply for both firms, with Infosys reporting 25.6% and Wipro 21.7%, a 22-quarter-high. “When Covid started, there were deferrals of cost like pay hikes, promotions and recruitments. While that gap has been eased, travel cost continues to be very low which has aided the margins,” Infosys CFO Nilanjan Roy said.
Wipro said 5 out of its 7 sectors grew over 4% sequentially led by the consumer business. Growth in financial services was driven by demand across all sub-verticals led by demand in digital operations, cloud infrastructure services and digital transformation.
For Infosys, the growth was led by BFSI and energy, which were up 12% and 4.9% respectively compared to the same period last year. “We feel a lot more optimistic about banking and financial services on the back of a lot of large deal wins,” Infosys COO Pravin Rao said.