Q4 revenue miss only a blip for IT industry, indicators point to a better future
Top Indian IT companies reported muted earnings for the fourth quarter. Infosys, HCL Technologies, and Tech Mahindra missed the topline estimates by 0.5-1.1 percent, while TCS performed marginally better with revenue growth of 4.2 percent.
The revenue miss during the quarter is largely seen as a moderation after strong sequential growth in the last few quarters. The reasons for the drop in revenues were company-specific.
Strong deal wins, order pipeline give comfort
Several indicators suggesting that the revenue miss was just a blip and the IT industry is poised for a good run in the upcoming quarters.
Despite muted Q4 revenues, companies have seen strong net new wins and a good mix of small, medium, and large deals, increasing the total commercial value of new deals in Q4.
The overall deal pipeline has remained robust despite the strong conversion in Q4. It augurs well for revenue visibility beyond FY22. It is also reflected by the fact that Tier-1 IT companies have guided for double-digit revenue growth in FY22.
Robust hiring trends
Buoyed by the strong revenue visibility, hiring activities also picked up in Q4. It was for the second consecutive quarter that top five companies continued their hiring spree and it was at an all-time high in Q4FY21.
As per a Kotak Institutional report, Naukri JobSpeak Index for March 2021 has increased by 47 percent in the span of a couple of months for IT software/software services companies. Net additions of top five companies increased 29 percent QoQ to 46,087.
Robust hiring trend is likely to continue in FY22 as well. With strong demand for talent, wage hikes can be significantly higher in the coming quarters. It is likely to impact the margins of the company. In spite of this minor impact, record hiring indicates a low bench and strong optimism on demand. Companies ramped up the hiring of freshers while reducing the mid-management staff.
- Robust hiring trends:
Buoyed by the strong revenue visibility, hiring activities also picked up in Q4. It was for the second consecutive quarter that top five companies continued their hiring spree and it was at an all-time high in Q4FY21. - Winners and laggards:
Financial services were one of the verticals resilient due to acceleration in digital transactions. It has been among the largest verticals for Tier-1 IT companies like Infosys and TCS.
- Higher business values:
The link between profits and business value means that the moment a corporation creates a new sustainable level of profit, the business value is adjusted accordingly. - Lower staff turnover:
This, combined with the culture that must exist for innovation and creativity to flourish, means that new employees will be attracted to the organization.