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Can Wipro overtake HCL Tech to become India’s third biggest IT firm again?

Two years ago, HCL Technologies overtook Wipro to become India’s third largest information technology (IT) services company. Under new CEO Thierry Delaporte, can Wipro regain its place in India’s IT pantheon? 

October 25, 2021 / 01:05 PM IST
Wipro CEO Thierry Delaporte

Wipro CEO Thierry Delaporte

 
 
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For Wipro Limited, the past year has been something of a landmark. The Bengaluru-based information technology (IT) company finally caught up with the industry’s double-digit growth rate and passed a key milestone: $10 billion in annual revenue run rate.

Wipro during the earnings call on October 13 announced that it has crossed the $10 billion revenue run rate for the last 12 months ended September 2021. It logged $2.4 billion in incremental revenue in 12 months, bridging the gap with HCL Technologies Limited, which two years ago had supplanted it as India’s third-biggest  IT company. In the 12 months ended September 2021, HCL Tech posted $10.8 billion in revenue.

Wipro’s stellar performance came on the heels of Thierry Delaporte, a 27-year veteran of the IT services industry who previously worked in Capgemini SA, taking over as managing director and chief executive officer on July 6, 2020, as the company reorganised its leadership ranks.

With the Frenchman at the helm, can Wipro wrest back its place as the No. 3 IT company in India, just behind Tata Consultancy Services Limited and Infosys Limited?.

“Under Thierry's leadership, Wipro is finally making its long awaited comeback, the sales momentum which has been demonstrated over the last few quarters looks like it will continue,” said Peter Bendor-Samuel, CEO of Everest Group, a research and advisory firm.

Close

Before Delaporte came on board, Wipro lagged its peers on the growth front. Its revenue grew at a much slower pace, enabling Noida-based HCL Tech to overcome it.

After posting 19% revenue growth in the financial year 2011 to $5.2 billion and 13,4% to $5.9 billion the following year, Wipro’s pace began to flag, dropping to a single-digit rate.

Not the first time 

HCL Tech wasn’t the first company to knock Wipro off its perch in the IT pantheon. In the early 2000s, Infosys had overtaken the company to become India’s second-largest IT services provider; in the 2002 financial year, Infosys posted Rs.2,603 crore in revenue compared to Rs. 2,300 crore earned by Wipro.

The gap widened in financial year  2012 to $1 billion and to 5.4 billion in 2021, when Infosys posted $13.5 billion in revenue compared to Wipro’s $8.1 billion.

Wipro was $1.8 billion ahead of HCL Tech in revenue terms in financial year 2010. In a decade, the tables had turned. In financial year 2019, HCL posted sales of $8.6 billion to $8.1 billion for Wipro. In financial year 2021, HCL Tech’s revenue grew 2.4% to $10.18 billion. Wipro’s declined 1.4% to $8.14 billion.

How did Delaporte pull off the feat of narrowing the gap in the last financial year?

The Frenchman put in place a new business model on January 1, scaling down 20 company units to four strategic business units based on geography and sector – Americas1, Americas2, Europe, and Asia Pacific Middle East and Africa (APMEA).

Restructuring   

While the Americas are based on sectors, Europe and APMEA are based on geographies to drive growth from the regions where the company expects 58 percent om incremental revenue.

These units are to be aligned with two global business lines (GBLs) based on capabilities – iDEAS (Integrated Digital, Engineering & Application Services) and iCORE (Cloud Infrastructure, Digital Operations, Risk & Enterprise Cyber Security Services).

Delaporte also created a new role, chief growth officer, to drive large deals in Wipro which it had been missing out on. Wipro won a $700 million deal in December from German retailer Metro AG after acquiring its IT unit.

Acquisitions were a key part of the restructuring exercise. Over the last one year, Wipro made a string of acquisitions, the largest being London-based management and consulting firm Capco for $1.45 billion. Other acquisitions include Ampion, a company that’s engaged in cybersecurity, a key focus area for the company.

Wipro empowered its global account executives to strengthen  relationships with customers in key geographies such as the US and Europe.

It is also on a talent acquisition spree. This financial year, the company plans to hire 17,000 freshers and 25,000-30,000 the following year. It is also focused on diversifying its leadership in terms of gender and ethnicity to keep the growth momentum going.

Advantage HCL Tech? 

Wipro will bridge the revenue gap with HCL Tech this financial year, thanks to both organic and inorganic growth, said  Apurva Prasad, vice president of institutional research at Elara Capital. The acquisition of Capco, which accounts for about 10 percent of revenue, has helped push growth.

The company grew 4.6 percent in constant currency terms excluding its acquisitions of Capco and Ampion. Constant  Constant currency refers to a fixed exchange rate that eliminates fluctuations when calculating financial performance figures.

According to Ray Wang, Principal Analyst & Founder, Constellation Research, "Thierry has put together a very strong team that’s growth focused, and client centric.  These are the next leaders who get large deals and account, and they also understand how to sell across functional fiefdoms.  The arrival of these senior sales leaders will make a difference."

Still, some experts are betting on HCL Tech retaining its lead.

HCL Tech started the year on a weak note, hurt by a blip in its products and platforms (P&P) business, which declined 8 percent in the quarter ending September of this financial year. HCL Tech’s engineering, research and development (ER&D) business, which accounts for 16 percent of revenue, was hurt by the Covid-19 pandemic.

But P&P is expected to recover in coming quarters and momentum in ER&D is returning, growing 5.4 percent sequentially in the second quarter ending September 2021.

These are not the only reasons why analysts are betting on HCL Tech.

Omkar Tanksale, research analyst at Axis Securities, explained that barring the P&P business, HCL Tech’s IT services segment grew by a healthy 5.2 percent and had a robust deal pipeline of new deals at $2.3 billion between July and September 2021.

Hiring has been at an all-time high across the IT sector; for HCL Tech, the addition of 11,135 employees in the second quarter was a record.

In a research note, Motilal Oswal Securities said the hiring was a smart move and a safeguard against the current supply crunch.

“It also points to the management’s confidence in growth acceleration in the services business over the next few quarters, which should help usher revenue growth and employee productivity back to its historical levels,” the note added.

The company’s bet on a diversified portfolio will yield results in the long run, Tanksale said. Compared to its peers, HCL Tech has a higher presence in ER&D, and P&P, which account for 12 percent of its revenue.

“In my estimation, HCL Tech is expected to close FY23 with $12.7 billion revenue and Wipro $11.7 billion,” Elara Capital’s Prasad said

Even Bendor-Samuel of Everest Group said: “While HCL Tech had a relatively slow start to the year, it is likely to improve in coming months.”

Sizing each other up 

On the competition with Wipro, HCL Tech’s CEO C Vijayakumar said:

“We are always competing with ourselves, not with others. We always want to do the best possible from our perspective.”

He added: “And right now, I think the market demand is very good. So, we are very focused on organic growth. There may be some small tuck-in acquisitions. So, that’s what we are doing and can’t comment on what others are doing.”

Asked if Wipro was set to overtake HCL Tech to regain its position as India’s third-largest IT services company, the usually candid Delaporte was circumspect about mentioning a timeframe.

“I’ve always been cautious about when it will happen. But I think we are progressing along the same line,” he said.
Swathi Moorthy
first published: Oct 25, 2021 01:05 pm

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