Mega deals paper some cracks for in-turmoil IT firms

Amid the tricky financial year 2023-24, IT firms saw losses in Pack revenue from their telecommunications clients-suggesting that a rejig could be in order

- VERNIKA AWAL

India's USD 254-billion IT services firms saw telecom clients offer a mixed bag through a topsy-turvy FY24. While India's top three IT services firms bagged mega, USD 1 billion-plus digital transformation and tech services deals from domestic and global telecom firms, Tech Mahindra struggled through a year of transformation for the fifth and final large-cap, homegrown IT services firm.

Tech Mahindra's struggle is significant and sets the context for what could play out soon. The latter is India's most prominent tech services provider for the telecommunications industry-raking in USD 2.32 billion from the sector even in a weak year. However, this revenue has come at a cost for the company-its income from telecom clients dropped by USD 330 million through FY24, a 12.1% decline compared to the previous financial year. In comparison, its net revenue declined by 5% to USD 6.27 billion for FY24.

This clearly shows that telecommunications as a sector has underperformed—and threatens to be a weak industry to rely on amid macroeconomic concerns and inflationary pressures. Industry analysts, thus, warn of caution in the telecommunications sector, which could defer their tech spending and cause a dent in the entire IT services economy.

To be sure, telecommunications is a crucial market for India’s top IT services firms to fish for clients. Through FY24, the segment generated USD 8.25 billion in net revenue for the top five IT services firms, declining nearly 3% over FY23. While this decline is not empirically vast, it is crucial given that telecommunications accounts for just over 10% of the net revenue the top five software outsourcers earned last fiscal year.

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