IT firms’ revenue from top clients dips

India’s information technology services firms, such as Infosys and Wipro, have seen revenue contribution from their top five clients decline as they reduce spend on traditional services and shift technology budget towards emerging areas such as digital and cloud.

These large clients, who have multi-year outsourcing contracts with the Indian firms, contribute nearly a tenth of their revenue. Any change in their IT spending would have an impact on renewals, forcing the companies to invest more resources and time to get new contracts.

Infosys had 1,162 clients as on March 31, 2017, while Wipro had nearly 1,300.

Infosys, the country’s second largest IT services firm, saw more than 10 per cent decline in revenue share from the top five clients in the last financial year. While it received 14.1 per cent of the total income from the top five customers in FY16, the share in the last financial year stood at 15.7 per cent.

Rival Wipro saw top five customers’ contribution to overall revenue at 10 per cent last financial year, compared to 11.6 per cent the year before. The company, however, witnessed a higher decline in top 10 customers’ share from 19.3 per cent to 16.9 per cent in the same timeframe.

Tata Consultancy Services (TCS), the country’s largest IT services firm, has stopped sharing client-wise revenue contribution numbers. It added two less clients in the $100-million-plus league in the last financial year, while in all other categories, below $100 million, it added more clients compared with FY16.

This is true for one of the mid-size IT services firms, too.

Mindtree’s revenue from top two to 10 accounts declined by 10 per cent, mainly led by softness in three accounts. The management told analysts that revenue contribution from certain top accounts “would continue to remain volatile in FY18”. Mindtree reported 328 clients as on March 31, 2017.

Analysts primarily attribute this to the restructuring of the work outsourced to Indian IT firms.

For example, for a large contract given to any of the Indian IT services firm, the client may look at giving cloud migration work to someone else, thereby, reducing the total size of the deal. “Another possibility could be — though not a common practice yet — doing a portion of the digital technology work, such as analytics, inhouse,” said Rajesh Gupta, India partner of technology research and consultancy firm ISG.

What also may have resulted in a dip in the contribution from top clients is the uncertainty in their own businesses as the BFSI (banking, financial services and insurance) and retail segment have been volatile in the industry’s two key markets — US and Europe.

“Top clients of Indian IT firms are facing challenges in their own business environment. There are uncertainties in the global market. At the same time the BFSI sector business models of banks are being disrupted by fintech start-ups,” said Pareekh Jain, senior vice-president, HfS Research India.