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  • What do the first quarter numbers say about growth in the technology sector?

    Publish date: 27th August, 2018


    The technology sector followed a well-tread path when it came to its first quarter results. A few companies delivered good returns while the management commentary for all companies indicated optimism. However, there is a small twist this time. Following years of deceleration, the industry is finally set for growth.

    Here are a few interesting findings from the results of Q1FY19.


    Better than expected performance by TCS

    Among all the Tier-1 companies in this sector, market leader TCS displayed the best results with a 4.1% growth in constant currency (c/c) terms. The company added as much as $ 204 million of absolute increment revenues in c/c terms. In comparison, the combined incremental revenues of the next four companies (Infosys, Wipro, HCL and Tech Mahindra) were much lower at $ 125 million.

    Click here to find out more about TCS results.

    Mid-tier companies continue to impress

    If growth in the Tier-1 was polarised, it was just the opposite in the mid-tier pack. While Mindtree and L&T Infotech achieved a growth rate of more than 20% on a YoY basis, other companies like Hexaware and NIIT Technologies registered impressive growth rates too. Market share gains, lesser legacy drags and an increase in deals over the last year were the key factors that helped to boost growth for these companies.

    Click here to read how L&T Infotech performed during the quarter.

    Deals vs. growth

    Most of the companies in the sector have registered strong deal flows and record bookings. This would generally indicate a growth in incremental revenues at record levels. However, that has not happened for all companies. For example, HCL Technologies has registered record bookings in two quarters. However, these bookings would deliver only a modest revenue growth of 4.25-6.25% in c/c terms. This could be due to an increase in leakage of existing revenues.

    The BSFI growth conundrum

    Growth in the banking vertical was a mixed bag across the sector. This is quite surprising since IT spending in the banking sector has been growing at a fast rate. This should have been reflected in a robust growth for all players. However, while TCS and Wipro registered healthy growth, companies like Infosys and HCL saw a decline. Wipro and TCS have earned good returns by improving customer experience and aggressively participating in integration digital programs. Growth in the insurance segment has been strong for most companies in the sector.

    Conclusion

    The IT sector has had a decent run in the first quarter of FY19. Revenue growth was quite muted for top-tier companies with the exception of TCS. The big surprise has been the mid-tier companies like Mindtree and L&T Infotech that have delivered stellar results. On the whole, the industry is finally set for acceleration in growth following years of low growth.


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