IT services companies bet on digital amid business slowdown

While each company defines “digital” in slightly different ways, areas like cloud, cyber security, and data analytics are generally categorised under this business unit.

Wipro Ltd does not define digital purely based on technology. “For us, it is about strategy, design and technology delivered in new ways of working. We believe digital is about transformation and that is our primary lever for categorisation,” Rajan Kohli, president of Wipro Digital told Mint in a recent interview.

All organisations have realised that migrating to cloud is one of the best things that have happened for them, Bhanumurthy B.M., Wipro’s chief operating officer said in an analyst call post Q4 results. “The organisations that have moved to cloud have been able to respond to this (covid-19 crisis) very well,” he said.

Infosys Ltd is seeing an uptick in demand for certain areas of digital such as virtualisation and cloud with people working from home. “Virtualization, cloud, workspace transformation all form part of digital and they are one of the elements of digital where we will see some traction, anything that helps clients to move more and more of their work into the remote working approach,” Salil Parekh, CEO, Infosys said during the recent earnings. “There are other elements of digital, which potentially are more project related, which we think will become slower in the coming quarters.”

India’s largest IT services company Tata Consultancy Services (TCS) Ltd also marked out particular areas of digital which are expected to grow. “There will be specific areas like security, cloud migration, like rolling out these new-age, what we call distributed digital workspaces, which require a very strong binding between consulting and execution. Those are the kinds of consulting areas that will be in demand,” Rajesh Gopinathan, CEO, TCS said during the Q4 earnings.

“That is where the focus of our consulting and SI (system integration) practice is, and we are rapidly cycling into those services. We are creating a catalogue of many of these execution-cum-advice-led services, which we believe will be very valuable and in demand in the near future,” Gopinathan added.

Mumbai-based competitor Tech Mahindra Ltd expects focus on digital transformation to return in the medium term. C.P. Gurnani, CEO, Tech Mahindra said during the earnings that although the demand traction of the first three quarters of FY20 has reversed in Q4, “we expect that the focus on digital transformation, remote working, and network modernisation will recover in the medium term.”

Evidently, digital revenues have been consistently growing for these companies. Infosys’ digital revenues grew 31.7% y-o-y and contributed 41.9% to the total revenues for the fourth quarter. Wipro’s digital business continued to grow 34.6% on year and contributed 41.2% to the company’s overall revenues in the quarter ended March.

For Tech Mahindra, digital revenues grew 2% sequentially and stood at 44% of total revenues for the fourth quarter. On the other hand, TCS removed digital as a separate classification about two quarters ago citing overlap between their core and digital offerings.

Analysts believe the definition of “digital” has changed over the years. “Digital is not discretionary spend anymore; it is the centre of activity. Obviously, the deals could be much smaller, more outcome based, and the money is being spent in a more nuanced manner now,” said Sanchit Vir Gogia, CEO & chief analyst, Greyhound Research.

―Livemint