Pandemic-Fuelled Digital Push Did Not Boost Growth For TCS, Infosys And Wipro As Much As Expected

Work from home and digital push by companies during the pandemic cushioned India’s software services providers. Yet, this transformation did not usher in a super growth phase as the information technology firms expect to only go back to pre-Covid levels in the new fiscal.Tata Consultancy Services Ltd., Infosys Ltd. and Wipro Ltd. guided to a doubled-digit growth in the financial year starting April. That will bring revenue growth back to the trend prior to the pandemic.TCS’ rupee revenue rose 4.6% in the financial year ended March, while it contracted 0.8% in constant currency terms.Infosys’ revenue grew 10.7% in rupee, while 5% in constant currency.Wipro’s full-year rupee revenue contracted 1.4%, and declined 2.3% in constant currency..Deal WinsTCS, India’s largest IT firm, won total contracts worth $31.6 billion in FY21, including $9.2 billion in the fourth quarter. That gave it the confidence of forecasting double-digit revenue growth in FY22.Infosys, which met its revised revenue guidance for FY21, won deals worth $2.1 in the fourth quarter, taking its order book to $14.1 billion in FY21. The company said 66% of the net orders came from new customers.That prompted the nation’s second largest software services provider to forecast 12-14% rupee revenue growth in FY22.Wipro won large deals worth $7.1 billion in FY21, with the fourth quarter contributing $1.4 billion. The deal win momentum led to a 2-4% growth guidance for the first quarter and 11-13% for the full fiscal. The projection does not include numbers from Capco—the acquisition is expected to be completed by the end of June..Research Reports On TCS’ Earnings Healthy Revenue Growth, Improving Deal Wins: ICICI DirectDowngrade Cycle Ahead? ICICI SecuritiesStrong FY21 Exit Rate, Deal Wins To Drive Growth In 2022: Motilal Oswal Best Placed, Composition Of TCV Is Positive: Prabhudas Lilladher.Margin PressureSoftware majors saw significant margin improvement in the last financial year as employees worked from home, travel and marketing expenses were curtailed and wage hikes deferred. But all that is expected to reverse as business returns to normal, bringing back travel and marketing expenses and wage hikes. Hunt for talent forced companies to provide 100% variable pay, offer double hikes and promotions in the last six months.While a depreciating rupee will offer some cushion, margins are likely to come under pressure.TCS ended the year with a margin of 25.9%, close to the lower end of guidance of 26-28%. The margin came off in fourth quarter as the company began to ramp up for the large deals. Low margin profile from the acquired captive centres and wage hikes will further put pressure on the margin in the next few quarters, it said.Infosys’ margin widened 340 basis points to 24.5% in the last fiscal. But this is expected to taper in FY22 as the costs from hike in wages in January this year and another in July is expected reverse gains. It has forecast margins in the 22-24% range for FY22.While Wipro’s FY21 margin rose 220 basis points to 20.3%, it expects the margin to fall back to 19-19.2% in the new financial year. It expects a 2-percentage-point dilution due to the Capco acquisition. The company will hike wages for the remaining 20% employees from the senior grade in June, which will put further pressure on the margins..Research Reports On Infosys’ EarningsFY22 Guidance Leaves Scope For An Upward Revision: Motilal OswalMedium-Term Outlook Cautious; FY22 Guidance On Expected Lines: ICICI SecuritiesMiss On Revenues, In-Line Margin Performance: Prabhudas LilladherMomentum Intact, OPM Guidance Slightly Disappoints: Dolat Capital.Hiring And AttritionTCS expects hiring in FY22 to remain around 40,000 in FY21. Attrition rate stood at 7.2% but warned this will rise as the deal momentum of the last 12 months will put pressure on retention costs.Infosys saw the worst highest rate at 15%, an increase of 500 basis points, in FY21. It hopes two round of wage hikes will help arrest the churn.For Wipro, the attrition rate stood at 12.1% for the year. The company faces the challenge of retaining employees at consulting firm Capco it recently acquired. It added nearly 16,000 employees in FY21, including 3,000 in the fourth quarter. The company expects to hire a similar number in FY22.

Pandemic-Fuelled Digital Push Did Not Boost Growth For TCS, Infosys And Wipro As Much As Expected

TCS, Infosys and Wipro guide for double-digit growth in FY22.

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Pandemic-Fuelled Digital Push Did Not Boost Growth For TCS, Infosys And Wipro As Much As Expected

TCS, Infosys and Wipro guide for double-digit growth in FY22.

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