Higher revenue and employee forecasts indicate growth for India’s top five IT companies

India’s top IT services companies have increased their revenue growth projections for the current fiscal year (FY25), with four of the five largest companies even hiring more people in the first six months compared to the period of the previous year.

This positive guidance comes at a time when companies’ order books have narrowed in the first half of FY25 compared to the first half of FY24. Furthermore, the current quarter (Q3) is not expected to generate considerable profits.

The higher revenue forecast and headcount growth indicate things may improve this fiscal year for the country’s $254 billion IT industry, which grew at its slowest pace last year due to a slowdown in demand and macroeconomic challenges that limited customer spending on technology.

Infosys, which started the year with growth projections of 1-3% in constant currency terms (excluding currency fluctuations) for the 12 months to March 2025, now expects to end the current financial year with growth in income of 3.75-4.5%. compared to last year.

In FY24, the Bengaluru-based company posted revenue of $18.6 billion, up 1.9% year-on-year, its slowest growth since Salil Parekh took over as CEO in January 2018.

In the company’s post-earnings call with analysts on October 17, Parekh said multiple factors, including its performance in the first half of FY25, contributed to the guidance increase. Infosys saw its revenue grow almost 3% year-on-year in the April-September period to $9.6 billion.

“We saw continued momentum in volumes as well as financial services,” Parekh said. “Our increase in smaller deals, which are less than $50 million, as we said previously, has seen strong double-digit growth…I think all of these factors contributed to the increase in guidance.”

Noida-based HCLTech now expects revenue growth of 3.5-5% in constant currency terms in FY25, slightly higher than the 3-5% growth it had forecast at the start of the financial year. In the first half, the company increased its revenue almost 6% year-over-year to $6.8 billion.

“While we see optimism coming from the improving demand environment across multiple verticals, we are also a bit more aware of the broader macroeconomic environment and geopolitical context,” said C. Vijayakumar, CEO of HCLTech, in the release. the company. -Interaction of results with analysts on October 14.

HCLTech was the fastest growing among its peers in the last fiscal year, posting $13.3 billion in revenue at a year-on-year growth rate of 5.4%.

Tata Consultancy Services Ltd (TCS), India’s largest software services company, does not detail quarterly or full-year growth guidance. However, its chief executive, K. Krithivasan, sounded optimistic in a post-earnings conference call with analysts on October 10.

“With the easing of the interest rate environment, consumer confidence and industry concerns will improve,” Krithivasan said on the call. “This can potentially lead to a better investment. Customers are focusing on operational efficiency and upgrades for the future with an eye toward efficiency and automation.”

Hiring on the rise

While higher revenue forecasts could be an indicator of growth, the increasing number of employees at IT services companies is indicative of growing demand for software services.

Three of the top five companies (TCS, Tech Mahindra and Wipro) have added more staff since the start of the fiscal year. Infosys added employees in the second quarter, offsetting the reduction in the first three months.

TCS added 11,178 employees in the first two quarters of FY25, compared to a drop in headcount of 5,900 in the same period last year. In total, TCS ended the September quarter with 612,724 employees.

Infosys added 598 net new jobs in H1FY25, compared to a headcount decline of 14,470 in H1FY24. It ended the September quarter with 317,788 employees.

Its cross-city peer Wipro has added 1,315 employees since April this year. It had reduced its workforce by 13,863 employees in the first half of FY24. It ended September 2024 with 233,889 employees.

Pune-based Tech Mahindra Ltd, part of $5.9 billion (market capitalization) Mahindra Group, increased its workforce by 8,818 since the start of the fiscal year. This contrasts with a net workforce reduction of 1,796 in the first half of the previous fiscal year. Tech Mahindra ended the three months to September 2024 with 154,273 employees.

The script is slightly different for HCLTech, as the company cuts staff in both this fiscal year and the previous one. This fiscal year, it has eliminated 8,860 jobs after exiting a joint venture with State Street, a Boston-based financial services provider, divesting its 49% stake in the joint venture effective April 1. Comparatively, it had eliminated 4,805 jobs in the first half of FY24. It ended the September quarter with 218,621 employees.

Trying one quarter ahead

While the headcount and growth review could show sparks of recovery, the three months to December 2024 look challenging.

The third quarter is generally a seasonally weak quarter for software service providers, due to shorter work hours due to the holidays, resulting in subdued business.

“Our third quarter revenue,” Wipro CEO Srinivas Pallia said the company’s third quarter revenue is expected to be affected by seasonal furloughs (fewer working days), as part of his prepared remarks in post-earnings conference call with analysts on October 17: “As a result, we forecast sequential revenue growth of -2% to 0% in constant currency.”

While the other major local IT services companies have factored in the impact of reduced working days, Wipro’s Pallia said the situation could be different for his company.

“Maybe it could be very specific to the clients we work with and the decisions they make because some of the sectors have a lot more permits than the rest,” Pallia said.

As reduced working hours could impact businesses, the impact of salary increases for employees could also dampen margin growth for local IT services companies.

“The impact for the next quarter will be 65-80 basis points (basis points) in the third quarter, and a further incremental impact of another 50-60 basis points in the fourth quarter,” said Shiv Walia, chief financial officer at HCLTech. , in On the company’s post-earnings conference call with analysts: “That’s the impact of the pay increases we’ll have for the rest of the year.”

HCLTech had the best margin performance among its peers, reporting a 150 basis point sequential jump in operating margins to 18.6% in the July-September 2024 period. A bp is one-hundredth of a percentage point.

Growth on the horizon

At least one analyst said growth in IT services companies was imminent and attributed it to the adoption of artificial intelligence (AI) and technology modernization.

“Growth is again on the cards for some of India’s wealth services providers, who are adapting to the new service economy, where there is greater focus on developing data and artificial intelligence infrastructure and modernizing of the core technology,” said Phil Fersht, CEO and chief analyst. of HFS Research.

However, a second analyst projected an uneven recovery.

“We have seen banks assessing growing needs to work on IT modernization and seeking help with compliance and risk management, but these improved sources of demand for IT services are likely offset by insourcing,” said Peter Bendor-Samuel, founder and CEO of Everest Group. Insourcing refers to providing traditionally outsourced IT services to internal teams.

“The growth in the workforce is due to a certain extent to companies positioning themselves to be able to grow, but also to balance the decline that we have seen over the last year,” Samuel said.