Endava Plc, a UK-based IT services company specializing in digital transformation, is gaining momentum in the sector. JPMorgan analyst Tien-tsin Huang has named it a ‘top pick’ with significant potential in digital IT for the second half of 2024. Endava’s strong growth prospects are fueled by the increasing need for digital transformation across various industries, particularly in payments, banking, and telecoms.
Tata Consultancy Services (TCS), a leading Indian IT services company, experienced a significant drop in its market capitalization last week due to a broader downturn in the equity market. Despite the decline, TCS remains the second most valued firm in India.
Infosys, India’s second-largest IT services company, has received a pre-show cause notice from Karnataka State GST authorities for alleged GST evasion of Rs 32,403 crore. The notice pertains to expenses incurred by overseas branch offices during July 2017 to March 2022. Infosys maintains that GST is not applicable on such expenses and has responded to the notice. The company also received a similar notice from the Director General of GST Intelligence.
Ola founder and CEO Bhavish Aggarwal believes India, with its vast pool of IT professionals and data, can lead the world in artificial intelligence (AI) just as China dominated manufacturing. He advocates embracing AI to boost productivity and create new jobs, emphasizing that India’s IT services industry can become even more productive by leveraging AI. Aggarwal also expressed concern about the influence of big tech companies and their promotion of ‘wokeism,’ highlighting his disagreement with mandatory pronoun selection on platforms like LinkedIn.
Rishad Premji, Executive Chairman of Wipro, has taken a significant pay cut for the second year in a row, reducing his compensation to around Rs 6.5 crore in FY24. This decision comes amidst a period of negative performance in Wipro’s IT services business. Meanwhile, his father, Azim Premji, received a salary of Rs 1.05 crore.
Wipro’s recent announcement of 11 large deals worth over USD1 billion in Q3FY23 is a positive indication for the Indian IT industry. This follows similar reports of record-breaking deal wins by TCS and Infosys, suggesting strong demand for IT services. Investors should be optimistic about the future prospects of these companies.
Despite a challenging year for the Indian IT sector, auto companies are emerging as a strong growth driver for FY24. Automotive firms are increasingly outsourcing software development and engineering services to IT companies to support their transformation to electric and autonomous vehicles. This trend has contributed to a significant increase in revenue from automotive clients for IT services companies, particularly in manufacturing and engineering, research and development (ER&D) segments.
IT services company LTIMindtree reported a 1.2% year-on-year decline in consolidated net profit for the March quarter to ₹1,100.7 crore, impacted by slower ramp-ups and weak performance in the banking and financial services space. However, the company expressed confidence in returning to growth in the April-June period. The company’s revenue for the quarter grew 2.32% to ₹8,892.9 crore, with 74% of the revenue coming from the North American region. For the full fiscal year 2024, LTIMindtree’s net profit rose 4% to ₹4,584.6 crore, and revenue increased 7% to ₹35,517 crore. The company’s order inflow for the full year grew 15.7% to $5.6 billion.
Wipro Limited (NYSE: WIT), a leading global information technology, consulting, and business process services company, has announced its financial results for the fourth quarter of fiscal year 2024.
In a conference call led by CEO Srinivas Pallia, the company reported a slight 0.1% sequential growth in IT services revenue for Q4, with large deal bookings of $1.2 billion. For the full year, Wipro achieved a revenue of $10.8 billion and expanded its margins to 16.1%. Despite a challenging macroeconomic environment, the company saw a 5.2% increase in net income and earnings per share (EPS) for the quarter, while full-year EPS grew by 0.8%.
Wipro’s cash flow was robust, with $626 million generated in Q4 and $2.1 billion for the full year. The company expects a sequential growth of -1.5% to +0.5% in constant currency for the first quarter of 2025, with IT Services business segment revenue projected to be between $2.617 billion and $2.670 billion.
Key Takeaways:
– Wipro’s IT services revenue grew marginally by 0.1% sequentially in Q4.
– The company booked large deals worth $1.2 billion and reported full-year revenue of $10.8 billion.
– Margins expanded to 16.1% for the full year, with a margin improvement of 235 basis points.
– Net income and EPS for Q4 increased by 5.2%, while full-year EPS grew by 0.8%.
– Cash flow was strong, with $626 million in Q4 and $2.1 billion for the full year.
– Wipro expects Q1 ’25 sequential growth of -1.5% to +0.5% in constant currency.
Company Outlook:
– Wipro anticipates Q1 2025 IT Services business segment revenues to range between $2.617 billion and $2.670 billion.
– The company remains cautious due to the overall demand environment and sector-specific softness.
– Focus areas include accelerating large deal momentum, simplifying the operating model, and leveraging Capco’s BFSI consulting capabilities.
Bearish Highlights
– Wipro faces challenges due to high discretionary spending in the BFSI sector.
– There is a weaker performance in the communications and high-tech sectors.
– The conversion of large deal total contract value to revenue is lower because of discretionary spending and slower buoyancy in smaller deals.
Bullish Highlights
– The company saw growth in the BFSI and healthcare sectors.
– Strategic acquisitions and the launch of the Wipro Enterprise Artificial Intelligence Ready Platform with IBM (NYSE: IBM) are expected to bolster business.
– Capco’s performance has shown an uptick, contributing to synergy wins and revenue acceleration.
Misses
– The company reported a marginal sequential growth in IT services revenue for Q4, reflecting a challenging macroeconomic climate.
Q&A Highlights
– Strategies to reduce churn levels include providing growth opportunities and focusing on internal talent development.
– Wipro aims to improve win rates by proactively creating pipelines and shaping deals specific to industries and clients.
– The company has generated 85% to 110% of free cash flow as a percentage of net income historically and aims to continue improving cash flow generation.
