Sector Update | Technology
Sector Update | 29 June 2016
Technology
IT Digital Day: Key Takeaways
How vendors are trying to differentiate themselves in Digital
We hosted IT Digital day in Bangalore, and met with management of Infosys, Mindtree
and Wipro to understand their strategies and strengths in Digital.
In an effort to distinguish themselves in the market, the companies are emphasizing
on design, consultative approach and co-innovation.
Deal sizes continue to inch up in Digital, but majority of demand comes from existing
clients. End-to-end transformation deals, including new and traditional, are sporadic.
Customers still opt for Digital solutions as a separate deal in many cases.
Some common themes across companies include: [1] investments in the form of
training, [2] engaging (and at times investing) in collaborative client-vendor spaces
and acquisitions and [3] embracing the onsite-centricity of the business.
As a result, with small scale, just premium pricing may not be enough to ensure
profitability. Size is imperative for Digital to come more in tandem with company-
average margins.
Majority of deals still separating Digital and SI:
Deal sizes in Digital continue to
increase encouragingly, but they are still not in the multi-million-dollar range. While
this can be attributed to the maturity of the industry, most customers are still
segregating Digital from plain old SI. Amid such a trend, pure Digital work often ends
up in the hands of perceived specialists, at the expense of Indian IT companies.
Large transformation deals combining front-end Digital-oriented work with back-
end SI are only visible in select instances, where customers are early adopters of
Digital. This may become a mainstream going forward. That said, overall growth
could remain curbed as much of the growth in Digital would replace and not add to
spending in traditional services, in our view.
Digital helping mine existing clients:
Majority of demand in the Digital space comes
from existing customers. While capabilities are the obvious criteria in the decision-
making process for Digital services, the scale of operations is not counting for much,
unlike traditional services. Vendors are increasingly looking at Digital distinctly by
either separating the unit within the company, or by appointing dedicated Digital
resources for customer-facing roles. Some common themes across companies
include: [1] investments in the form of training, [2] engaging (and at times investing)
in collaborative client-vendor spaces and acquisitions, and [3] embracing the onsite-
centricity of the business.
Margins will come with scale:
Investments in the form of training, co-innovation
centers and acquisitions have been scaling up. Onsite centricity, upfront
investments and gestation period in new solutions/software mean Digital margins
are lower today at the current scale, but the realization rates are strong. We believe
with scale, margins in Digital should converge to company-average margins.
Companies’ comments on what differentiates them in Digital
INFO:
It has adopted a Design Thinking approach to solving clients’ problems
and taking a lead compared to peers. Its workshops in this area have received
encouraging feedback.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
29 June 2016
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