The Indian IT services industry was hit by a triple-whammy in 2008: currency fluctuations, a global slowdown in new IT project spend and the crisis of confidence sparked by Satyam. Yet the leading players are showing impressive resilience, and the Satyam debacle could make them stronger still.
Tough 2008, but WITCH vendors come out fighting
The leading Indian vendors suffered significant slowdowns in revenue growth over the last three months of 2008. At constant currencies, TCS grew revenues 24 per cent, Infosys 15 per cent, Wipro 19 per cent and HCL 22 per cent. This is pretty good growth considering the economic slowdown, but is still roughly 10 percentage points lower than growth this time last year.
Currency fluctuations meant that actual growth was much more muted: TCS -0.05 per cent, Infosys 8 per cent, Wipro 12 per cent and HCL 11 per cent. Cognizant, the C in WITCH, has yet to report its results. However, as a US headquartered India heritage vendor, it will be interesting when it does release earnings to see how differently the Forex dice rolled for its top and bottom line.
Despite Forex eating up a lot of revenue growth, the WITCH vendors continue to take large chunks of global market share off their Western competitors quarter-on-quarter and theyre doing it as profitably as ever. The four top vendors that have reported all managed to either maintain or increase their margins in the period, despite the potential distractions of the economic crisis and a recent upsurge in acquisition activity.
In fact, the increase in acquisition opportunities is one of the most positive outcomes of the economic downturn, with the leading Indian players all taking advantage. TCS and Wipro picked up Citigroups Indian back office and IT divisions respectively, and HCL bought a string of companies over the year, culminating in its purchase of the UKs Axon. Indeed, HCL beating Infosys for Axon meant that Infosys was the only leading Indian vendor not to acquire last year.
Satyam scandal benefits the Indian industry
Of course, the elephant in the room is Satyam. The company is operating under government administration, while the new board is securing funding for ongoing operations and currently looking for acquirers for all, not parts, of the business. Hopefully it will be a swift process. The board already has several suitors, including PE firms. Notably, Larsen & Toubro, an Indian engineering conglomerate with a medium-sized IT services business, bought a 12 per cent stake in Satyam a few days ago.
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