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HCL likely to unseat Wipro as No. 3 IT player this quarter

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BENGALURU: The Indian IT services industry appears set to witness a major change in its pecking order this quarter. HCL Technologies will likely overtake Wipro in revenues in the ongoing quarter to become the third largest company – after TCS and Infosys – going by the upbeat revenue guidance for the ongoing fiscal that it provided on Wednesday.

If we regard Cognizant as an Indian company, then HCL will be the fourth largest. Cognizant is registered in the US, but its origins in many ways was in India, and the majority of its employees are in India.

The last time there was a shake-up of the order was in 2012, when Cognizant dislodged Infosys from the second spot.

HCL

TOI reported last month that HCL has already overtaken Wipro in market capitalization and noted then that the same could happen with revenue soon. On Wednesday, HCL’s results for the fourth quarter showed that it was only $24 million short of Wipro’s revenue in the quarter.

Wipro, hit by bankruptcies of two major clients and a severe slowdown in the US healthcare business, has said that in the ongoing quarter, its revenue will remain flat, or go down by up to 2% sequentially. It expects its first quarter 2018-19 revenue to be between $2,015 million and $2,065 million.

HCL does not provide quarterly guidance, but said its revenue for the full year in constant currency will grow by 9.5-11.5%. If we assume that it will grow sequentially in Q1 by 2%, then its revenue will be $2,079 million, which will definitely take it past Wipro. If it grows by 1%, then its revenue will be $2,058 million, which too is close to the upper end of Wipro’s estimate.

Asked about the impending change in rank, HCL CEO C Vijayakumar said, “From my vantage point, it’s business as usual. It is incidental that we are close to overtaking our nearest competitor.”

In the 2017-18 financial year, HCL outshone its peers, clocking a revenue growth of 10.5% to $7.8 billion in constant currency. In comparison, TCS grew by 6.7% and Infosys by 5.8%. Cognizant grew by 9.8% in dollar revenue in 2017 (it goes by calendar year and does not provide constant currency numbers).

HCL appears to have successfully diversified from its dependence on infrastructure management services (IMS), which has been impacted by the rapid migration to cloud. It has found a new sweet spot in engineering services, which used to be one of Wipro’s strongholds.

Engineering services contributes 23% to its revenues and grew 26% in 2017-18 compared to the preceding year. HCL acquired Butler America Aerospace for $85 million in 2016 to bolster its capabilities in the aerospace sector. It also bought Geometric the year before to provide engineering services in automotive, aerospace and defence sectors.

Hansa Iyengar, analyst in London-based Ovum Research, said HCL overtook Wipro to become the largest engineering services firm and a lot of its growth continues to be fuelled by the engineering services business. Coupled with a strong revenue per employee rate, steadier attrition/headcount control, and investments in automation, HCL is in a strong position to continue on its growth trajectory for the next few years, she said. “On the other hand, Wipro has been plagued by internal struggles as well as challenges with its clients in key verticals which have slowed down its growth momentum. These will, no doubt, be addressed by the management, but unless course correction happens rapidly, Wipro will be unable to catch up to HCL,” she said.

However, Ray Wang, CEO of Constellation Research, said the longer term winners will be the firms that build for a digital revenue model going forward while transitioning their customers to the new world. “We’ll see the winners and losers from the digital disruption of IT services emerge in the next 24 months, not in the next quarter,” he said.

Updated: May 3, 2018 — 3:37 am

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