Continued slowdown in revenue growth of TWILTCH impacts employee headcount

The TWILTCH providers (Tech Mahindra, Wipro, Infosys, LTIMindtree, TCS, Cognizant, and HCLTech) represent the leading India-heritage IT and business process service providers. Their financial results are often considered a good indicator of how the wider market is performing. The latest quarterly results show yet another slowdown in revenue growth, creating a knock-on effect for slowed headcount growth. We delved into each provider’s calendar Q2 2023 financial reports⁽¹⁾ and found

• Tech Mahindra: In Q2 2023, Tech Mahindra reported a revenue decline of -1.9% YoY after 3.7% YoY growth in the previous quarter. The slowdown occurred across all industries and geographies, but communication and BFSI were most impacted. Consequently, Tech Mahindra’s headcount declined sharply, -6% YoY.
• Wipro: Revenue growth slowed to its lowest in two years, 1.7% YoY. Americas2, Communications, Technology, and BFSI recorded the most notable revenue declines. Wipro also reported a decline in headcount of -3% YoY.
• Infosys: Infosys reported a slowdown in revenue growth from 17.5% YoY in Q2 2022 to 3.9% YoY this quarter. Revenue declines in financial services and communications drove the slowdown. Infosys’ headcount also plateaued, reporting 0% YoY growth, following 9% growth in Q1 2023.
• LTIMindtree: The smallest TWILTCH provider once again reported the highest revenue growth: 8.1% YoY—a slight slowdown into single digits. Slowing is consistent across industries except manufacturing, which grew at 13% YoY in Q2 ‘23 vs. 11% in Q1 ’23. LTIMindtree also reported a headcount decline of -2% YoY, despite a slowdown in attrition.
• TCS: TCS reported the second-highest growth rate of the TWILTCH this quarter at 6.6% YoY. Growth slowdown was notable in its biggest geographic market, North America, and in manufacturing and regional markets. TCS’ headcount grew 1% YoY this quarter, a slowdown from 19% YoY in Q2 2022.
• Cognizant: Overall revenue was flat at around $4.8 billion, reflecting a small decline of -0.4% YoY this quarter. The slowdown occurred in North America and financial services. Cognizant also reported a slowdown in headcount growth to 1% YoY, despite significant moderation in attrition.
• HCLTech: HCLTech reported a slowdown in revenue growth, falling from 8.1% YoY in Q1 2023 to 5.8% this quarter. Growth has slowed across all regions, and revenue declined in the technology and services, and telecom and media industry units. Headcount growth has also slowed to just 6% YoY, compared to peak growth of 24% (in Q1 ’22).

The Bottom Line: It’s understandable that revenue growth is slowing, given the macroeconomic pressures facing enterprises. However, service providers must ensure they don’t aggressively cut their workforce and find themselves short when enterprise demand ramps back up. Enterprises must consider their partners’ talent strategies.

TWILTCH companies’ revenue growth is lower than pre-COVID levels as enterprises continue to prioritize only critical investments and extend decision-making timelines. Enterprises expect higher efficiency, cost optimization, and faster ROI and are consolidating vendors. Despite the headwinds, service providers continue to invest in AI-related solutions and cultivate partnerships to accelerate innovation and help enterprises embrace AI and transform into Generative Enterprises.

In recent months, the service providers have been dealing with a talent shortage; however, even as the attrition rate evens out, hiring is slowing, leading to a decrease in headcount growth. But as Generative Enterprises inspire a new S-curve of value creation, it’s important not to mistake the headcount slowdown for a reduction in headcount due to automation and AI. This is market headwinds at play. Smart services firms will ensure they match the increasing demand from enterprises for AI and carefully manage talent with a long-term view. Smart enterprises need to be aware of their partners’ talent strategies.

Note: (1) Revenue and growth data represents HFS estimates based on analysis of publicly available information. The year-on-year (YoY) growth compares a quarter with the same quarter the previous year.
Source: HFS Research and earnings reports of leading service providers, 2023