AI Impact: Big discounts in IT deals hurt, but tech spend set to rise, says Coforge CEO

Time of India

a day ago

Major clients renewing IT contracts at 30-50% lower rates, citing increasing use of artificial intelligence (AI), is deflationary for the outsourcing industry, Coforge chief executive Sudhir Singh said. At the same time, however, technology spends on transformational projects are on the rise, he told ET in an interview.'Every time there is a disruptive technology, tech spend as an aggregate always increases,' Singh said, adding that Coforge aims to capitalise on that.The $283-billion outsourcing industry's clients globally are seeing a contraction in the investments on 'run budgets' such as infrastructure, maintenance, and testing, he noted.
'Having said that, there is no enterprise which is saying that with AI having come in, we will reduce our spend on technology. They understand it is a massive lever for driving change and transformation,' Singh added.
Amid AI disruption and an uncertain macro environment, Indian software service providers are facing heightened cost pressures on account of a fundamental shift in their deals and pricing.
Coforge seems to have bucked that trend.
The mid-tier IT firm won a $1.5-billion deal from US firm Sabre through request for proposal (RFP) in the March quarter, beating two large IT service providers.
For the June quarter, the Noida-and-New Jersey-headquartered firm won five large deals, with total orders worth $507 million.
Its revenue rose 8.2% sequentially in rupee terms and by 9.6% in dollar terms to Rs 3,688.6 crore, or $442.4 million. Year-on-year, the revenue grew 54% both in rupee and dollar terms, supported by the Cigniti acquisition. Margins improved to 17.5%, from 16.9% in the preceding quarter, but declined from 18% a year ago.
This comes at a time when most larger peers are witnessing a sub-5% revenue growth and Coforge's immediate rivals are seeing a margin crunch.
As of March end, the company is the eighth largest Indian IT firm with a revenue of $1.45 billion for FY25, behind
Mphasis
, which reported a revenue of $1.68 billion for the fiscal.
In 2020,
NIIT Technologies
was rebranded as Coforge a year after it was taken over by Baring Private Equity Asia. Its revenue was $600 million then.
'We were a small cap,' Singh said. 'When we came together...Mphasis was three times our size. We will, I think, take over Mphasis next quarter, we should be the biggest mid cap.'
Coforge has been reporting stronger growth than larger industry peers, steadily climbing the ranks among the top 10 IT companies.
Singh also expects the company's margin to go up by at least 140 basis points, or 1.4 percentage points, in FY26 despite subdued demand and macro environment. 'We'd be very comfortable growing around 18-19% in the short term, till we hit $5 billion,' he said.
Singh also underlined that there is no material de-hyphenation of revenue-to-headcount growth at present and majority of the impact on jobs is still on select AI-based projects.
The fixed-price and milestone-based contracts continue to demand employees and Coforge will continue to increase its workforce as of now, he said.
While clients are looking to slash the run budget, they are increasing the 'change budget,' which used to be called the development projects.
'These days, we call it transformation projects. Such projects' conversion does not happen through RFPs (request for proposals) as enterprises are still not yet fluent on how to apply AI to drive such projects,' Singh said.
'We, for one, try to focus more on the change bucket, where you don't have to compete with an RFP that has come out,' he added.