On to New Domains

CP. Gurnani, CEO and MD, Tech Mahindra, travels for about 200 days a year meeting customers, employees and partners. But with the 21-day lockdown, he is confined to his home in Noida, and work seems to have only multiplied. In just 10 days, he has "signed up five new clients across the US and Europe for workplace as a service solution." He says, "My aim is to keep the lights on within Tech Mahindra and within my client's location." The solution he is talking of is their home package, Workplace as a Service (WaaS), which provides a unified enterprise workspace that allows a user to work from anywhere on any browser-based device.

The coronavirus scenario has thrown up new demands for the IT company, such as delivering solutions to police on curfew management or to municipalities to track and trace patients, and providing doctor connect. The company is also working with Mahindra Group chairman Anand Mahindra on his ventilator-making project.

Investing in Expertise

Echoing Gurnani's point, Infosys co-founder and industry veteran Kris Gopalakrishnan says this may be the time for Indian IT companies to cement their bonds with customers. "Customers and their revenues are impacted. So you can work with clients and help them. This is not just the right thing to do but will also ensure customer loyalty," he says.

Every leader and his team member in Indian IT is adjusting to the new normal. Debjani Ghosh, President, Nasscom, in between her 10-15 video conferences a day, says, the immediate priority is safety of employees, and ensuring that critical work can continue so that "our clients can continue to depend on us. We will figure out the costs involved later."

While details will emerge in due course, the overall IT pie will expand. "Not immediately but in the long run because the one thing that the current developments have shown us all is the importance of digital technology even for basic survival - from keeping in touch with people to ordering your essentials," adds Ghosh.

For too long, the sector has focused on deepening skills in select domains only and not so much on businesses across the spectrum that are today feeling the heat. It is therefore time for the IT sector to equip itself for delivering solutions in wider domain areas.

Apart from clients, in an era of domain dons, IT companies need to urgently invest in building expertise in more domains and go beyond the traditional areas like BFSI and retail. Kiran Karnik, former president of Nasscom, says, "IT companies could focus on building on domain knowledge across a much wider range of sectors much like what it has accomplished in banking and retail." He says the industry should deepen knowledge in supply chain and healthcare. Also, at a time when there is more bench strength, companies could get to work on shadow projects and build expertise in segments such as cutting edge areas of science.

Maintaining that there is no sector that the IT industry does not touch, Nasscom's Ghosh says, "We will see a lot more of technology in health and education and they will see models getting reinvented." Others also point to supply chain, hospitality, travel, manufacturing, telecom, energy and utilities.

Foraying into newer geographies has been on the IT sector's to-do list; to look at locations apart from the US and Europe, such as Japan, Asia-Pacific region and even India now.

Operational changes, too, are expected. Indian IT is learning from the disruption caused by the coronavirus pandemic and it may never go back to its pre-corona days. "One big learning is the need to include work-from-home in every disaster recovery plan and perhaps on an ongoing basis get 20 to 30 per cent work done from home, which may have the positive impact of lowering commutes for employees," says Gopalakrishnan. "Also, in many homes, IT connectivity infrastructure, internet bandwidth, cyber security and privacy is not adequate to handle this surge. Over time, investing in mainstreaming this coupled with reinforcing remote work would be the way forward for the IT sector."

For the IT sector, transition to work from home also meant getting regulatory permissions. A learning is also on how contracts are to be structured and the kind of indemnification that may be needed to work in the post-corona scenario.

Bracing for Impact

In the near future, however, IT companies are bracing for business and revenue impact. The $191 billion behemoth sector, which grew 7.7 per cent from $177 billion in the previous financial year, gets almost 90 per cent of its total revenues from the US (62 per cent) and Europe (including the UK). These regions have been hit hard by coronavirus.

Though no one is able to put a figure on the quantum of business impact and for how long the current situation will last, the first set of numbers on business expectations show reason for concern. The first real indicator was in the financial results of global consulting and technology major Accenture. Despite closing its second quarter (Accenture follows a September-August financial year) with revenues of $11.1 billion, an increase of 7 per cent, the company lowered its revenue growth forecast. For fiscal 2020, it now expects revenue growth to be in the range of 3-6 per cent in local currency, lower than 6-8 per cent previously. In the earnings call on March 19, CFO K.C. McClure, said, "The coronavirus crisis is rapidly evolving and has created a significant amount of uncertainty. Our third-quarter and full-year guidance reflects our assumptions, as of today, based on the best information we have regarding the potential effect of the coronavirus on our business."

More such announcements from other companies are expected and Indian IT is understandably worried.

Ready for More

The other dampener is expected on account of sharp interest rate cuts in the US and the UK, which will put pressure on the BFSI (banking, financial services and insurance) sector. Many see BFSI as a shadow of the real economy and already under pressure. Lower spending budgets in this direction will have an impact on what companies decide to spend on their IT budgets.

BFSI has the biggest revenue share - around 30 per cent - for most IT companies. Analysts say that for bigger IT companies, growth is currently in high single digits - about 6-9 per cent - and there is a chance of this sliding to lower single digits - 4-5 per cent growth. In dollar terms, for leading Indian IT companies, roughly every percentage fall in revenue growth means a decline of $100-200 million, depending on the size of the company.

Analysts, however, see reason for hope. A recent report by Motilal Oswal states, "Despite the near-term Covid-19 uncertainties, we continue to like Infosys/HCLT/TCS among Tier I, and LTI/Mindtree/Hexaware among mid-caps." It says these companies have robust business models, high return ratios, strong management teams and attractive valuations after the recent sharp correction. "These companies have a legacy of overcoming multiple business challenges and technology change cycles. Accordingly, we believe they will be able to adapt and overcome any transient challenges posed by Covid-19."

The coming few weeks will surely put these theories to test.

@EKumarSharma