In the financial year 2020-21, new customer additions for the significant four Indian IT services firms fell by more than half. TCS, Infosys, Wipro, and HCL Tech announced a total of 115 new clients at the end of FY21, a decrease of 67% from the 347 new clients reported the previous year.
TCS added 15 new clients in FY21, down from 95 in FY20.
In contrast, Infosys saw an improvement in new customer additions, from 72 in FY20 to 81 in FY21.
After gaining two new clients at the end of FY20, Wipro lost 11 clients in FY21. According to data obtained exclusively by BusinessLine from CARE Ratings, HCL Tech saw a decrease in new client additions from 179 in FY20 to 30 in FY21.
According to Vahishta Unwalla, Research Analyst at CARE Ratings Ltd, the decrease in new clientele occurred because market compression and low technology budgets happened in the first half of FY21. The second half was seasonally poor due to layoffs.
Furthermore, the retail, production, and networking verticals have yet to recover completely.
As a result, these segments registered significantly fewer new client additions. At the aggregate level, the fall of new clients has affected revenues. In FY21, the four firms together saw sales growth of just 2% year over year (in US dollar terms), compared to 7% in FY20.
Experts believe that substantial vendor consolidation, increased offshoring of IT services, broad-based growth across all geographies and verticals, and lower operating costs (such as H-1B visa and travel costs) would ensure revenue growth this year is higher.
“Everyone is operating practically due to the pandemic. There used to be restrictions that work had to be undertaken from the same country or the same offices. “That restriction is now lifted,” said Pareekh Jain, an independent consultant.
In addition, client acquisitions in the first half of FY21 were mainly concentrated in deals under $1 million, while new clients in the third quarter came from higher bands of contracts worth $50-100 million.
“This indicates that clients’ demand for digitisation of operations has grown, which could lead to strong financials for IT behemoths,” Unwalla explained.
As per the study conducted by financial services firm IIFL, client preferences have shifted toward digital transformation, with existing developments such as automation and AI, hybrid cloud, and customer engagement accelerating.
According to Faisal Kawoosa, founder of market analytics company techARC, the growth in these new IT opportunities may have been as high as 20-25 per cent in the previous year.
According to experts, experts also report that clients are consolidating their companies with a single IT services provider.
Unwalla said, “This will also help the Top 4 IT teams.”
According to Kawoosa, this consolidation began well before the pandemic.
“Over the last 2-3 years, clients have begun to recognise the value of in-house IT services. Furthermore, they understand the value of hiring only one vendor who can provide valuable services, rather than two or three,” Kawoosa added.
Savings on Cost
According to Jain, vendor consolidation will lower IT service provider prices, improving their financial situation.
However, Alok Shende, Managing Director of Ascentius Insights, claims that companies will see the impact of a decline in new clients on sales and profit margins for IT companies for later.
“Because these transactions require a lengthy process, they yield returns after 2-3 financial quarters. As a result, they will affect the company’s future growth rate,” Shende explained.
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