Q2FY22 Performance Analysis of Top 3 Indian Publicly Listed Technology Services Companies (TCS, Infosys and Wipro)
The top three companies continued to maintain a good growth trajectory in the second quarter with total revenues of nearly US$13 billion increasing 4.6% q-o-q and 20.3% y-o-y (reported currency), with the double-digit growth expectations being reaffirmed for FY22.
- The overall deal pipeline remains healthy with the top three companies announcing a deal pipeline of over US$10 billion, reflective of promising business sentiments across clients. With respect to size of the deals – large deal wins seem to be slightly down (as reflective in case of Infosys), while mid and small sized deals continue to drive a large part of the deal pipeline.
- Net client addition remained positive with Infosys and Wipro adding over 110 clients (an increase of 3.8% q-o-q) this quarter, with revenue per client increasing for both on a sequential basis.
- Clients in the 1mn+ bracket increased 3.7% together for the TCS, Infosys, and Wipro to over 2,500.
- Revenues increased 4.6% q-o-q/ 20.3% y-o-y with the demand being accelerated by digital transformation and cloud projects.
- This quarter is reflective of the strong demand which is broad based across geographies as well as verticals.
- Geographies – All the major markets witnessed growth in revenues sequentially as well as y-o-y. North America (5.7% q-o-q and 21.6% y-o-y) continued to witness recovery with Europe maintaining a healthy growth trend (3.2% q-o-q and 26.3% y-o-y). India, which was a drag for TCS last quarter, witnessed a rebound growing at 14.1% q-o-q; however, it was down for Infosys at 5.2% q-o-q.
- Verticals – All segments continued to witness growth sequentially as well as y-o-y led by Manufacturing and High-Tech which grew 7.5% q-o-q (21.9% y-o-y), followed by Telecom (6.0% q-o-q, 18.4% y-o-y), Banking and Finance (4.6% q-o-q 24.3% y-o-y), Retail (4.5% q-o-q, 23.1% y-o-y), Healthcare (4.0%% q-o-q, 18.4% y-o-y), and Energy and Utilities (2.0% q-o-q, 18.8% y-o-y).
- Digital revenues2– For Infosys grew 10.0% sequentially and 43.0% y-o-y, the share of digital in total revenues increased to 56.1% during the quarter from 53.9% in 1QFY22.
- Net margins declined sequentially to 18.8% from 19.1% in 1QFY22, primarily driven by salary hikes, new hires as well as increased sub-contracting costs. Notably, this quarter the y-o-y margins are also down compared to 19.8% in 2QFY21 highlighting the increasing pressure of talent shortage on margins.
- Attrition witnessed a significant increase across all three companies as the demand for new-age skills remains on the rise.
- TCS, Infosys, and Wipro reported attrition of 11.9%, 20.1%, and 20.5%, higher compared to last quarter by 330 bps, 620 bps, and 500 bps, respectively.
- Employee count increased 4.3% q-o-q and was up 17.1% y-o-y as hiring remains a key strategy to manage talent shortage during the quarter with companies highlighting increased hiring plans for the rest of 2021.
- Together the three companies added ~43,000 in 2QFY22.
- TCS which hired 43,000 freshers in 1HFY22, plans to add another 35,000 in 2HFY22.
- Utilization remained at record levels with both Infosys and Wipro reporting utilization (excluding trainees) at 89.2% – highest since 1QFY17.
- With the rise of digital, skilling of employees remains a key focus.
- TCS reported 496k AGILE-trained associates (~94% of total employees), and 14.3 million learning hours (~14 hours per employee) in 2QFY22.
- Guidance from companies continues to reaffirm the double-digit growth for FY22.
- Infosys increased its revenue growth guidance for the year to 16.5% to 17.5% from 14% to 16% previously, reiterating its operating margin guidance of 22% to 24% for the full year.
- Wipro has given a revenue guidance for its IT Services business to be in the range of $2,631 million to $2,683 million, which translates into a sequential growth of 2.0% to 4.0% for 3QFY22.
KEY AGGREGATE METRICS (TCS+WIPRO+INFOSYS)
Source: Company Reports and NASSCOM Analysis
Note – Aggregated margins are weighted average margin
 TCS doesn’t report active clients details
2 Includes only Infosys as others don’t report digital separately