What feeble order books foretell for India's tech bluechips

Mint

23-04-2025

Slimmer order books and fewer mega-deals spell gloomy days ahead for four of India's largest IT services companies, posing an additional headache in a world of rising turbulence and advancing AI.
Tata Consultancy Services Ltd (TCS) and Wipro Ltd started FY26 with an order book which was smaller than at the start of FY25, while Infosys clocked fewer large deals in FY25, implying weaker revenue growth in the year ahead, five analysts said. TCS and Wipro also clocked fewer mega-deals (contracts above $1 billion) in the past year.
Mumbai-based TCS won orders worth $39 billion, 7.7% below what the country's largest IT services company won in FY24. TCS reported 3.8% dollar revenue growth to end the year with $30.18 billion in revenue.
Wipro's order book was down 4% last year to $14.3 billion, whereas cross-town rival Infosys reported large deals worth $11.6 billion, down 34% year-on-year. HCL Technologies won $9.27 billion worth of new deals last year, a 5% drop from the $9.76 billion won in FY24.
Also read
|
Captive concerns: Why Cognizant has called out the risk from GCCs
At Wipro, while the value of deals above $30 million was higher during the year, overall deal bookings fell. Infosys spells out the value of only large deals above $50 million, but not the overall contract value during the year.
"In FY25, TCV (total contract value) declined 34% y-o-y to $11.6 billion. The extent of decline in TCV could be the highest among peers," Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna wrote in a note dated 18 April, after Infosys declared its earnings.
"The decline is across both renewal (-40.2% y-o-y) and new TCV (-28.5% y-o-y). The lack of new mega deals decreases revenue growth visibility for FY26E unlike in FY25, where they provided significant revenue growth visibility," said analysts at Kotak.
A second analyst voiced a similar opinion.
'The low orders win reflects the muted sentiment that we are seeing in the enterprise IT spend," said Ashutosh Sharma, vice-president of Forrester, a Massachusetts-based tech advisory firm, referring to the three tech companies.
Read this
|
Infosys started the year strong, but will the end pack a punch?
'The last six months of FY25 were impacted because of this uncertainty. Now, as we go into FY26, it means that because of this uncertain tariff situation, we cannot get some clarity on demand. Consequently, we will see lower revenue, as is evident in the IT services companies' guidance for the next financial year," said Sharma.
TCS does not give revenue guidance. However, chief executive officer K. Krithivasan has said he expects the company to grow faster in the current fiscal year than last year.
Both Infosys and Wipro have outlined a slow start to FY26. Infosys projected its slowest growth for the fiscal year at the beginning of the year since April 2009. Wipro projected its slowest start to the new fiscal year, with April-June revenue expected to decline in constant currency. Constant currency does not take currency fluctuation into account.
For now, Wipro has attributed the weaker order book to slow spending among its smaller clients.
'The deals in the smaller and medium-sized bucket are not growing fast enough. And now, bookings are largely coming through the large deals," said Aparna Iyer, chief financial officer of Wipro, in response to a question on declining full-year order bookings during the company's post-earnings interaction with analysts on 16 April.
Also read
|
Will Pallia's game plan for Wipro secure Rishad Premji's legacy?
Wipro's large deal bookings grew 17% on a yearly basis to $5.4 billion, even as its total order bookings declined.
"[W]e believe the small, medium size deals would continue to leak the bucket, while large transformation deals might see execution delays in the near-to-medium term," Prabhudas Liladher analysts Pritesh Thakkar and Sujay Chavan wrote in a note dated 17 April, after Wipro declared its earnings.
Weaker order books come in the backdrop of an uncertain macroeconomic climate fuelled by President Donald Trump's tariff threats, which have led many Fortune 500 companies to pause tech spending and put essential tech projects on hold.
Fewer order bookings may also affect hiring at three of the country's four largest IT outsourcers, which together employ 1.16 million people. Fewer orders imply less work and less need for talent.
A fourth analyst voiced his opinions on these lines.
'We need to prepare for a world where revenues per employee will rise to $1M per employee by 2028. This means there will be fewer employees at all the IT majors," said R. Wang, founder of Constellation Research, a California-based tech advisory firm.
Read this
|
HCL's software products business falls short of profitability expectations
The country's largest IT services providers generate between $44,000 and $60,000 in revenue per employee.
Wang added that efficiency will further reduce the IT budgets of clients, which can hurt business.
'If successful, the top companies will be able to reduce their overall IT spend by 25% the way X and Meta have done. IT budgets are coming down because of exponential efficiency," said Wang.
The rise of Gen AI is also bad news for the country's $283 billion IT industry. Homegrown IT services firms currently deploy an army of engineers to do mundane and repetitive work. The advance of Gen AI implies that algorithms that use company-specific data can do the repetitive work that humans do. Using more Gen AI tools helps clients save costs and can potentially generate less revenue for IT services companies.
And read
|
Many Indian IT companies now station their CEOs where the grass is greenest