Demand uncertainties for IT firms persist

Demand uncertainties for information technology firms persist as clients are either cancelling or going slow on smaller deals amid adverse macro conditions, particularly in banking, retail, hi-tech and telecom verticals. However, the companies continue to report healthy growth in large-sized deals.

For instance, during the April-June quarter, Wipro reported muted total bookings of $3.7 billion, down 10% quarter on quarter. Within total bookings, large deals were healthy at $1.2 billion (up 9% each sequentially and on year) reflecting a slowdown in smaller deals. The company booked 10 deals in the higher-than $30 million total contract value (TCV) range. Wipro classifies deals above $30 million as large.

The company’s revenue guidance for the July-September quarter is soft at -2% to +1% q-o-q in constant currency terms, which is lower than analyst expectations.

In the post-earnings call with analysts, Thierry Delaporte, CEO, Wipro said, “More and more clients are expecting faster return on investments and optimising costs through increased use of automation and vendor consolidation.”

HCL Tech reported 18 large deals in the quarter, five more than in the preceding quarter. But the company’s TCV was down to $1.5 billion from $2.07 billion in the preceding quarter. The company said the number of $20-million clients fell from 131 in the March quarter to 127 in June quarter, reflecting pressure on smaller deals.

HCL Tech expects deal TCV to recover in the next couple of quarters given the strong deal pipeline (17.7% q-o-q, 26.2% y-o-y) and several deals in advanced stages. It has retained its revenue guidance at 6-8% y-o-y in constant currency terms for the overall company and 6.5-8.5% y-o-y in constant currency for services business for FY24, despite muted growth in Q1.

For Tata Consultancy Services (TCS), deal TCV at $10 billion was up 24% y-o-y, but smaller discretionary projects are getting impacted. The company management said there is a demand slowdown due to macro concerns. This is leading to reprioritisation of deals, which is resulting in pauses and deferrals of non-critical projects. The management said small deals are getting scrutinised and taking more time to ramp up.

K Krithivasan, CEO, TCS, said that while larger transformation programmes like cloud migration are continuing apace, some of the smaller programmes or sub-programmes are coming under scrutiny.

Infosys will announce its April-June quarter earnings on July 20.

Julie Sweet, CEO, Accenture, said in last quarter’s earnings call that the company’s revenues were impacted by lower-than-expected small deal sales, especially in strategy and consulting and systems integration.

Siddhartha Tipnis, partner, technology industry leader, Deloitte India, said, that while clients continue to be cautious on discretionary spending, there is a strong likelihood of large deals coming back to the sector.

“Things will be more clear after midcaps announce their results, as normally they don’t win large deals,” Pareekh Jain, founder, Pareekh consulting, said. Financial Express