Indian IT cos close in on IBM in services mkt

The revenue gap between IBM and Wipro was $270 million in 2008-09,which narrowed to $175 million in the fiscal ending March 31,2010. Analysts feel the gap would have shrunk further since then,but it would be hard to share concrete numbers. Though low margins and insignificant hardware presence pose significant challenges,Indian IT companies are gung-ho about overcoming them.

Says Anand Sankaran,senior vice-president and business head (India,Middle-East and Africa),Wipro Infotech: “We aim to be market leaders by 2012 in the domestic IT services market. Our anticipated growth will come from large transformational deals in banking,financial services and insurance (BFSI) and the government vertical. We also plan to expand in our small and medium enterprises (SME) and engineering,construction and transport (ECT) businesses,which at present contribute less than 5% each to our domestic revenues.”

The company expects a growth of 25% in the domestic market this year,against 20% last year. In contrast,Pradeep Nair,director of IBM India’s software group said that half of his software business clients are SMEs,an area where his company is strong.

While big-ticket deals from Bharti Airtel,Idea and Vodafone six years back gave IBM India an advantage,Wipro managed to reduce the gap with deals from Aircel,Lavasa,DIAL,ESIC,Punjab & Sind National Bank and Uninor.

Though Wipro gets the bulk of its IT services business from telecom,government and BFSI sectors — which give it 20-25% revenue each — Sankaran expects new verticals like ECT to fetch 10% revenues by 2012. ECT,he points out,is a vertical designed only for the Indian market.

For IBM,the public sector means big business. Says Nair: “In India,we see a lot of growth in the government vertical. The Indian government is very focused and has done a lot of investment in infrastructure. It is also taking analytics and business intelligence seriously. Utility modernisation is also a big area in this domain for us.”

Says Ratna Srivastava,senior analyst at investment advisory Tholons: “IBM’s domestic revenues grew fast till 2007 and saw reduced growth rate thereafter as Indian rivals encroached market share in verticals where IBM had first-mover advantage,primarily in telecom and public/government sector.” In fact,Wipro overshadowed other Indian rivals too,following its consistent strategic focus and wins in retail,public and telecom verticals as against TCS,Infosys and HCL.

Nair recounts the recent past: “Last year was a year of slowdown,though the banking and financial services,telecom and government vertical continued to do well for the company. This year,we are seeing a lot of traction of manufacturing firms and oil companies. Even insurance as a sector in in the phase of reinvention. Thus,last year,we had uneven growth and this year,we expect it to be evenly spread.”

TCS is catching up too,though it still has a revenue gap of $350 million with IBM. TCS subsidiary CMC has done significant work in infrastructure management,including computerisation of Indian Railways,Bombay Stock Exchange and tax computerisation in Karnataka. “Our approach is to have a strong R&D presence in India and be a single-stop shop for services. We had 3.5% operating margins five years ago,which now stands at 22%. We will expand into verticals such as agriculture and travel and tourism. Till now,we have been very strong in e-governance,” says R Ramanan,MD and CEO,CMC IT solutions.

HCL Technologies also played it smart by focusing on three service lines: system integration,managed services and technology integration. These service lines brought the company large deals this year from National Insurance Company and Electrolux. “We plan to invest $50 million in the ecosystem business incubation plan for India. This is expected to generate revenues of $100 million over three-four years. The plan includes focus on cloud technology and creating fully integrated solutions for different sectors like insurance,power and healthcare,” says Kiran Bhagwanani,senior VP (Middle East & India),HCL Technologies. HCL posted a growth of 30.4% in the Asia-Pacific region in 2008-09. The company clocked 19.8% quarter-on-quarter growth in July-September quarter for the region,against 8.2% more than a quarter ago.

As demand for infrastructure services continues to rise in India,Wipro has been able to manoeuvre it along with traditional IT services. This combination of services has fuelled its growth when compared to other counterparts in the domestic market.

According to an estimate from research firm IDC,India’s IT services market grew 5.4% last year. Analysts tracking the space attribute the top line success enjoyed by home-grown IT firms to the increasing maturity of the domestic services market,coupled with revival in sectors such as financial services,organised retail,media and entertainment and fast-moving consumer goods. The government,too,has accelerated the pace of awarding e-governance projects.

“The market is expected to be even more competitive in future,as it is the largest IT services market in Asia-Pacific,apart from Australia,” concludes Siddharth Pai,partner and managing director of TPI Advisory Services.