New customer additions fell by more than half for the big four Indian IT service companies in fiscal year 2020-2021. TCS, Infosys, Wipro and HCL Tech reported an addition of 115 new customers at the end of FY21, down 67% from the 347 new customers reported the previous year.

New TCS customer additions have increased from 95 in FY20 to 15 in FY21.

Infosys, on the other hand, has seen an increase in new customer additions, from 72 in FY20 to 81 in FY21.

Wipro lost 11 customers in FY21, having gained two new customers at the end of FY20. HCL Tech has seen a reduction in new customer additions from 179 in FY20 to 30 in FY21, according to data exclusively sourced from Activity area by CARE Ratings.

Key factors

Vahishta Unwalla, Research Analyst at CARE Ratings Ltd, said Activity area that the reduction in new customer base occurred because the first half of FY21 was marked by demand compression and low technology budgets and the second half was seasonally weak due to holidays.

Additionally, the retail, manufacturing and communications verticals have not fully recovered.

As a result, these segments saw a much lower addition of new customers. The decline in the number of new customers has had some impact on revenues at an aggregate level. Together, the four companies saw revenue growth of just 2 percent year-over-year (in U.S. dollars) in FY21, compared to 7 percent in FY20.

However, experts believe that a strong consolidation of suppliers, an increase in the offshoring of IT services as well as large-scale growth in all geographies and verticals and a reduction in operating costs (such as H-1B visa and travel) will ensure revenue growth. the outlook is better this year.

“With the pandemic, virtually everyone is working. Previously there were constraints that work had to be done from the same country or from the same offices. Now that this constraint is over, ”said independent consultant Pareekh Jain.

In addition, customer additions in the first half of FY21 were mostly concentrated in transactions under $ 1 million, while as of the third quarter new customers came from higher tranches of transactions. worth $ 50-100 million.

Digital technology

“This means that the need for the digitization of operations has increased among customers, which could also translate into strong finances for the IT giants,” explained Unwalla.

A report from financial services firm IIFL showed that there had been a reset of customer priorities towards digital transformation, in which existing trends such as automation and AI, hybrid cloud and the experience customer have accelerated.

Faisal Kawoosa, founder of market analysis firm techARC, estimates that the growth of these new opportunities for the IT industry could have reached 20 to 25% last year.

Experts also report strong supplier consolidation with customers consolidating their businesses with a single IT service provider.

“It would also benefit the top 4 computer players,” Unwalla said.

This consolidation is a trend that began long before the pandemic, Kawoosa said.

“Over the past two to three years, customers have started to recognize IT services that can be provided in-house. In addition, they recognize the importance of not hiring two / three vendors and sticking to one vendor who would provide worthwhile services, ”Kawoosa added.

Cost savings

According to Jain, vendor consolidation would also reduce costs for IT service providers, thereby improving their finances.

Alok Shende, managing director of Ascentius Insights, however, believes that the effects on revenues and profit margins of IT companies due to the reduction in the number of new customers will be seen much later.

“These deals pay off after 2-3 financial quarters because they involve a long process. Therefore, they can affect the growth rate of the business in the future, ”Shende said.