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NelsonHall Quarterly "Ones-to-Watch"
NelsonHall Quarterly "Ones-to-Watch" Financial Index Identifies Most Successful Vendors and "Those-at-Risk"
This article contains an extract from NelsonHall's quarterly "Ones-to-Watch" Financial Performance Index indicating financial performance metrics for Q4 2020 overall and by segment and a summary of the financial performance of the leading Indian IT Services vendors.
The NelsonHall "Ones-to-Watch" Performance Index is a Quarterly Index of Financial Performance, monitoring changes in revenue growth and profitability for individual services vendors and for segments of the market. The purpose of the Index is to assist buyers in monitoring the performance of individual suppliers and of various process areas and in early identification of both those vendors where the underlying business and financials are strong and those that are weak potentially placing the vendor at risk of acquisition or change in circumstances.
The objectives of the quarterly "Ones-to-Watch Performance Index" are to identify:
- Individual vendor financial and business strength
- Those vendors that are performing most strongly: the "Ones-to-Watch"
- Vendors that may be subject to financial and business problems, possibly leading to wider issues including their acquisition by competitors
- Those vendors and segments of the market that are achieving greatest, and lowest, revenue growth
- Average, median, upper quartile and lower quartile revenue growth for the industry and individual market segments
- Those vendors and segments of the market that are achieving greatest, and lowest, profitability
- Average, median, upper quartile and lower quartile profitability for the industry and individual market segments
The geographic scope of the research is global.
Q4 2010 Upper Quartile Revenue Growth was 26.5%
The BPO and IT services had bounced back strongly by Q4 2010 compared to 2009, with median revenue growth for the vendors at approximately 10%. Exhibit 1 shows the revenue growth metrics experienced by BPO and IT Services vendors in calendar Q4 2010 relative to Q4 2009.
Exhibit 1
|
Metric |
Growth (%) |
|
Average weighted growth |
14.0 |
|
Average unweighted growth |
19.5 |
|
Median revenue growth |
10.6 |
|
Upper quartile revenue growth |
26.5 |
|
Lower quartile revenue growth |
1.4 |
While the HR outsourcing vendors have also recovered strongly, the Indian IT services vendors continue to set the pace in terms of revenue growth, with Cognizant continuing to set a high standard even within this group of companies. Exhibit 2 shows the median revenue growth experienced by organizations broken down by segment for calendar Q4 2010 relative to Q4 2009.
Exhibit 2
edian Revenue Growth by Segment: Q4 2010
|
Segment |
Median Growth (%) |
|
Indian services vendors |
28.7 |
|
HR outsourcing vendors |
26.9 |
|
Staffing vendors |
18.1 |
|
Financial services vendors |
9.9 |
|
Pure Play BPO vendors |
5.3 |
|
Document management vendors |
4.8 |
|
Customer management services vendors |
2.1 |
|
European vendors |
2.0 |
|
Global/North America services vendors |
2.0 |
Q4 2010 Upper Quartile Profit Margin is 18.7%
Exhibit 3 shows the profit margin metrics experienced by organizations in calendar Q4 2010.
Exhibit 3
Profit Margin Metrics: Q4 2010
|
Metric |
EBIT Margin (%) |
|
Average weighted EBIT margin |
11.1 |
|
Average unweighted EBIT margin |
10.8 |
|
Median EBIT margin |
10.8 |
|
Upper quartile EBIT margin |
18.7 |
|
Lower quartile EBIT margin |
3.1 |
Exhibit 4 shows the median profit margins experienced by organizations broken down by segment for calendar Q4 2010.
Exhibit 4
Median Profit Margins by Segment: Q4 2010
|
Segment |
Median EBIT Margin (%) |
|
Financial services vendors |
18.6 |
|
Indian services vendors |
16.3 |
|
Global/North America services vendors |
12.9 |
|
Pure Play BPO vendors |
9.3 |
|
HR outsourcing vendors |
8.3 |
|
Document management vendors |
5.8 |
|
Customer management services vendors |
4.6 |
|
Staffing vendors |
2.9 |
|
European vendors |
1.1 |
Although EBIT margins are on average around 10% for the industry as a whole, some groups and some vendors remain at risk in terms of their profitability. There has been a high level of M&A activity among the CMS vendors, and although the staffing companies have now returned to growth, their profitability remains weak as does that of many of the local European IT services vendors, a number of whom must be considered to be acquisition targets as the market consolidates and as the Indian IT services vendors look to acquire onshore domain skills.
Exhibit 5 shows the overall Q4 2010 revenues and revenue growth for the Indian IT services vendors. Exhibit 5 Indian IT Services Vendor Revenue Growth: Q4 2010Indian IT Services Vendor Performance in Q4 2010
|
Vendor |
Q4 2010 Revenues ($m) |
Q4 2010 Revenue Growth (%) |
|
GTL Limited |
1,929.0 |
57.1%ᴖ |
|
KPIT Cummins |
60.4 |
52.8% |
|
Cognizant |
1,310.6 |
45.2% |
|
HCL Tech |
864.1 |
32.6% |
|
TCS |
2,144.0 |
31.1% |
|
NIIT Technologies |
65.8 |
30.6%ᴖ |
|
Hinduja Global Solutions |
62.8 |
29.0%ᴖ |
|
Infosys |
1,585.0 |
28.7% |
|
Syntel |
144.9 |
23.0% |
|
Polaris Software |
90.0 |
22.9% |
|
Wipro |
1,343.8 |
19.3% |
|
Hexaware |
65.6 |
18.9%ᴖ |
|
Patni |
183.0 |
7.6% |
|
3i Infotech |
141.2 |
7.2%ᴖ |
|
MphasiS |
269.9 |
3.5%ᴖ |
The weighted average growth for this group was 34.4% with median growth approximately 28.7%. Exhibit 6 shows the Q4 2010 profit before interest and tax and profit margins for the Indian services vendors. Exhibit 6 Indian Services Vendor Profit Margins: Q4 2010
|
Vendor |
Q4 2010 EBIT ($m) |
Q4 2010 EBIT Margin (%) |
|
Infosys |
479.0 |
30.2% |
|
TCS |
602.0 |
28.1% |
|
Wipro |
298.3 |
22.2% |
|
Syntel |
30.4 |
20.9% |
|
NIIT Technologies |
12.9 |
19.6% |
|
Cognizant |
244.6 |
18.7% |
|
MphasiS |
48.5 |
18.0% |
|
3i Infotech |
23.1 |
16.3% |
|
GTL Limited |
263.6 |
13.7% |
|
Patni |
25.0 |
13.7% |
|
Polaris Software |
12.1 |
13.4% |
|
HCL Tech |
113.6 |
13.1% |
|
Hinduja Global Solutions |
7.0 |
11.1% |
|
KPIT Cummins |
6.5 |
10.7% |
|
Hexaware |
5.9 |
9.0% |
These companies achieved an average unweighted profit margin of 10.8% in Q4 2010 and an average weighted profit margin of 11.1%. Exhibit 7 shows the Q4 2010 "Ones-to-Watch" Performance scores for the Indian IT services vendors. Exhibit 7 Indian IT Services Vendor Ones-to-Watch Scores: Q4 2010
|
Vendor |
Q4 2010 Revenue Growth (%) |
Q4 2010 EBIT Margin (%) |
Ones-to-Watch Score |
|
Infosys |
28.7% |
30.2% |
180 |
|
TCS |
31.1% |
28.1% |
172 |
|
Cognizant |
45.2% |
18.7% |
139 |
|
Wipro |
19.3% |
22.2% |
130 |
|
NIIT Technologies |
30.6%ᴖ |
19.6% |
129 |
|
Syntel |
23.0% |
20.9% |
128 |
|
GTL Limited |
57.1%ᴖ |
13.7% |
126 |
|
KPIT Cummins |
52.8% |
10.7% |
106 |
|
HCL Tech |
32.6% |
13.1% |
98 |
|
MphasiS |
3.5%ᴖ |
18.0% |
94 |
|
Polaris Software |
22.9% |
13.4% |
90 |
|
3i Infotech |
7.2%ᴖ |
16.3% |
89 |
|
Hinduja Global Solutions |
29.0%ᴖ |
11.1% |
85 |
|
Patni |
7.6% |
13.7% |
76 |
|
Hexaware |
18.9%ᴖ |
9.0% |
64 |
|
Unweighted Average |
27.3% |
17.2% |
114 |
|
Weighted Average |
34.4% |
21.2% |
140 |
|
Median |
28.7% |
16.3% |
106 |
The leading four Indian IT services vendors (Infosys, TCS, Cognizant, and Wipro) have turned in very similar financial performances and ones-to-watch scores in Q4 2010 compared to the previous quarter, though with Cognizant increasing the acceleration of its revenue growth slightly ahead of Infosys and TCS. Infosys has sometimes been regarded as being "tactical" and having less client influence than some of its competitors. However, the company is now attempting to address this issue and is endeavoring to become more strategic within its clients by establishing "Innovation & Transformation Boards" to pursue relationship roadmap development. Infosys currently (as is standard industry practise) uses client engagement boards to address operational issues on a monthly and quarterly basis. The ITB will be composed of a different group of workers from the engagement board, from both vendor and client side, who have domain expertise, but look to develop initiatives that will transform the relevant business process to achieve aggressive business targets. Infosys is also increasingly focusing on supply chain management and has launched an enhanced version of its Supply Chain Visibility & Collaboration product suite. The suite's core platform is built on Microsoft technologies including SharePoint 2010, Microsoft Office 2010 and SQL Server 2008 R2. Infosys Launches Enhanced Version of Supply Chain Visibility & Collaboration Suite TCS has been one of the more aggressive Indian-based players in developing a truly global global delivery model with substantial capabilities outside India and has now opened a BPO delivery center in the Philippines. The Philippines has typically been neglected by the major Indian IT services vendors because of its traditional voice emphasis. TCS Opens BPO Delivery Center in the Philippines The company has also been in the forefront in developing platform BPO offerings and has launched a range of cloud-based platform offerings for SMBs in the Indian domestic market. TCS Launches Cloud-Based Platform Offerings for SMBs Cognizant continues to achieve the highest revenue growth among the Indian IT services firms. The company remains very centric to the U.S. (77% of revenues), which may have assisted its growth in the last quarter. Cognizant is however, like its immediate competitors, increasing its presence onshore and has been strengthening its onshore delivery capability in the U.S. Cognizant Opens New Delivery Center in Arizona to Increase Presence in North America Cognizant Launches Workplace-Focused Center of Excellence with Carnegie Mellon The NelsonHall "Ones-to-Watch" Performance Index is a Quarterly Index of Financial Performance, monitoring changes in revenue growth and profitability for individual services vendors and for segments of the market. The purpose of the Index is to assist buyers in monitoring the performance of individual suppliers and of various process areas and in early identification of both those vendors where the underlying business and financials are strong and those that are weak potentially placing the vendor at risk of acquisition or change in circumstances. The objectives of the quarterly "Ones-to-Watch Performance Index" are to identify: The geographic scope of the research is global. The NelsonHall "Ones-to-Watch" Financial Performance Index is issued quarterly within NelsonHall's Key Vendor Assessment program. For further details, contact Paul Connolly at NelsonHall.
