India's big four services giants soar on demand for AI

Pipelines are full, but hiring has slowed

Indian IT service outfit HCL’s share price hit a record high this week, and scrip for its peers Infosys, TCS and Wipro also spiked, after the four announced quarterly results that revealed strong deal pipeline fueled by demand for AI, along with very slow headcount growth

The four added $22 billion to market cap in just two days this week.

Infosys’s revenues for Q3 23/24 grew [PDF] 0.1 percent year-on-year to US$4.66 billion; HCL rose 5.3 percent year-on-year to $3.41 billion; TCS increased 2.9 percent year-on-year to $7.28 billion and Wipro bucked the upward trend by sliding 6.9 percent to US$2.66 billion.

Regardless of its year-on-year decline, Wipro billed the results as a success.

“Let's just say, it's been a strong performance this quarter and it gives us good optimism for the quarters to come,” commented Wipro CEO Thierry Delaporte.

TCS’s CEO K Krithivasan described the market as experiencing a post pandemic correction in the company’s earnings call [PDF], which he opined as follows:

But the way we look at it, while there was a lot of investment that happened during the pandemic, at the time of peak uncertainty, our customers are now re-evaluating the investments they have made.

And wherever it's required, clients are pausing those investments, where they think it's yielding RoI, they're continuing with it. Having said that, we also believe that even though they might have made a lot of investment, there are many organizations still are laden with lot of technology debt. And once there is a certainty, clients will start spending to reduce this technology debt.

HCL CEO C Vijayakumar cited [PDF] increased headcount within his company as evidence of his company’s optimism.

HCL bucked the trend when it came to hiring this quarter. The company added 3,617 new employees, an increase of 1.6 percent. It may not seem like a big number, but the other three companies declined in headcount. All together the top four lost 12,637 employees.

The ones that did stay may have seen raises as wage hikes were back on the menu this quarter. Infosys employees were down seven percent year-on-year but the wage bill was up by a couple of percent.

Infosys CFO Nilanjan Roy comfirmed [PDF] the company paid more, but said the trend of higher employee costs would be reversing soon.

The company reported an 83.7 percent utilization rate, just slightly off the target of 84 to 85 percent. The CFO said the company had the option to hire more at short notice from trainees.

TCS CFO Samir Seksaria said his company had been cutting subcontractor costs.

“We have been using them to meet the short-term demand-supply mismatch,” he commented.

“Now as the supply side challenges of attrition cooled off, and we had invested into capacity. That is how we can manage the demand,” he added.

Order books showed promise across the industry.

“In a seasonally soft quarter, deal booking momentum remained strong. Our large deals recorded a 20 percent year-to-date growth,” boasted Wipro’s Delaporte. He indicated the company was seeing early signs of a return to growth in consulting.

Wipro’s large deal total contract value (TCV) stood at $900 million, total booking was $3.8 billion. Infosys large deal was at $3.2 billion, which 71 percent of was net new.

Vijakumar referred to HCL’s last quarter bookings as “very, very strong.”

Much of the new business in the pipeline comes from AI.

“Almost every discussion with clients involves some element of Generative AI,” revealed Infosys CEO Salil Parekh, while Vijakumar shared that HCL had 30 wins in Gen-AI projects.

“AI is now moving from the curiosity and experimentation stage to becoming vital, I was going to say viral as well, to business strategy. In fact, we can confidently say that every long-term large deal now has an AI component,” commented Delaporte.

TCS boasted that “AI.Cloud led the demand among Service Lines with strong momentum sustaining for Cloud migrations and increasing interest among customers for AI and Generative AI.”

A trend also emerged of the companies looking toward the auto sector.

According to Delaporte, Wipro is seeing strong interest for AI in the automotive industry and the company has made “significant inroads” through related investments – cloud, automation and autonomous related.

Infosys’ Roy said there was growth in both automotive and aerospace.

HCL R&D president Vijay Gunter said HCL’s acquisition of German automotive engineering services company ASAP Group this year was partly an attempt to get into the e-mobility space, “a space that most automotive and even off-highway equipment companies are investing into.” ®

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