In adversity, remember to keep an even mind. Adversity reveals genius, prosperity conceals it. Adversity has the effect of eliciting talents, which, in prosperous circumstances, would have lain dormant
—Horace, in The Book of Positive Quotations

WHEN INDIAN IT entered financial 2001-02, it was with the dread of impending gloom—everyone knew that the party was over and the year ahead would be tough. But no one was quite prepared for the severity of the hangover, or its stubborn refusal to go away. When the year finally ended, the slowdown still hadn’t, and nor were the signs on when it would anything to swear by—but the tough year had seen IT’s toughest realign businesses and target geographies to emerge stronger. But despite the strategies and the belt-tightening, the DQ Top 20 grew at a slower rate (13%) than the average industry growth rate of 14%—the first time ever that the exclusive club lagged behind overall numbers. The guilty party here—those top rankers who operate in the domestic market, which showed negative growth for the first time in fiscal 2001-02. The new DQ Top 20 closed the year with Rs 30,990 crore in total revenues, Rs 4,821 crore more than the Rs 26,169 crore notched up by last year’s club. There were two big differences in the Top 20 this time—apart from showing lower than industry average growth, this was the first time that four in the list showed negative growth, with red ink running across their balance sheets.

Snapshot Top 20 Club
	Industry growth with ITeS: 14% Industry growth without ITeS: 9% Top 20 growth with ITeS: 49.87% Top 20 growth without ITeS: 56.3%
	With revenues of Rs 4,187 crore and a growth rate of 33%, TCS—India’s (as also Asia’s) largest software exporter—led the DQ Top 20 rankings chart
	Four of the Top 5 players of the previous year hung on to their positions, with only distribution giant yielding its fifth rank (2000-01) to IBM India
	Hardware manufacturing exports was the hot ‘item’ of fiscal 2001-02, and this segment had two Top 20 representatives this year—Celetron and Moser Baer
	Global tech-led slowdown, 9.11, 12.13 and war threats were too much for the IT sector to ward off—billing rates were hit, and growth rates crashed
	2001-02 marked the first instance when the combined revenue growth of the Top 20 companies was slower (13%) than that of the overall IT industry (14%)
	Training was the worst-hit segment—while top gun NIIT saw revenues slide by 34%, others were hit equallly badly. Aptech fell out of the DQ Top 20 list
	The western region led in terms of IT spend, followed by north and south, with east coming in last. But all four regions ended the year with lower IT spend

Those on the new list, however, did justify their rankings—despite the negative growth shown by some. Nearly all performed better than the competition in their segments; a majority spent the slow year consolidating positions, either by entering newer geographies or redefining business models; nearly everyone used hitherto dormant cash reserves to push acquisitions and inorganic growth, with some even buying each other out. Most finished the year with their paintwork intact, and the sum of their revenues was a near-perfect 50% of overall industry size—Rs 30,990 crore out of Rs 62,134 crore.

And since the slowdown had started before the beginning of financial 2001-02, most had their strategies ready to counter it, with their moves mirroring those in the last quarter (JFM) of 2000-01—quick planning and quicker execution, spirited offshore development and tapping of business opportunities, consolidation and overhaul of business models, and the targeting of Europe, Asia-Pacific and other markets as new destinations. Despite the last, the US remained King in terms of Indian IT exports—in fact, it increased to 64% this year in fiscal 2000-01—but there were others knocking at the palace gates. And despite the focus on offshore, the bigger guns saw a pressure to go onsite, but with far lower billing rates—toplines soared, profits turned wafer thin.

While the driving chant was still one of bigger players getting bigger and their share of the overall pie increasing, the particularly bad year that the hardware, training and overall domestic market had, dictated the final structure of the new Top 20—Aptech, Microsoft India, Pentasoft Technologies and Cognizant Technology Solutions fell out of the listings; Intel Asia, Silverline Technologies, Patni Computer Systems and Moser Baer India moved in to fill the vacant slots.

Flight to scale
Proving their staying power, all but one of the Top 5 hung on to their rankings—it was only Tech Pacific that yielded and fell from #5 last year to #7 this time around, with its revenues showing 3% negative growth to Rs 1,676 crore. IBM India, with revenues of Rs 1,778 crore, moved up one notch to fill the vacancy. Others who made up the exclusive Top 5 list were near-foregone conclusions—Tata Consultancy Services with Rs 4,187 crore, Wipro with Rs 3,179 crore, Infosys Technologies with Rs 2,604 crore, and Compaq Computers with Rs 1,790 crore. This will be Compaq’s last year in the rankings, following its worldwide merger with Hewlett Packard. Among the top five, it was TCS and Infosys that defied the industry-wide HR trend of controlling manpower numbers, as both embarked on a recruitment binge. Clearly, Nasscom’s prediction of ‘Flight to Scale’—customers flying to the ones who have the size and scalability—had found its mark.

EXPORTS SAVE THE DAY: As Top 20 players in the domestic space showed negative growth, it was software exports that helped Indian IT’s finest—the DQ Top 20—finish with 13% overall growth

But there were those like Moser Baer India’s Deepak Puri who had their own plans for growth and expansion. In the ‘Year of Survival’, Puri’s optical disk manufacturing and exporting company showed an over-100% growth rate. The growing media market no doubt helped, but the strong performance also stemmed from Moser Baer’s strong R&D thrust. The company ploughed in over 2.5% of revenues (Rs 15-17 crore) into R&D and engineering work. Among the many feathers in its R&D cap was the development of the proprietary process PC12D XT, which helped it slash manufacturing costs by 10-15%. This process also saw the company complete its capacity expansion program in record time and below project cost. With the same initial budget, the company now intends to ramp up capacity to a billion units.

Moser Baer’s performance also signalled the growing stature of hardware manufacturing exports—it was the second company in this space (the other being Celetron) to figure in this year’s Top 20 list.

GROWTH DRIVERS: It was the sharp fall seen by packaged software, networking and systems that hit overall numbers

Cautious, careful, fearful...
The year began on a numbing note—Infosys Technologies, considered by most as a benchmark for ascertaining Indian IT’s health, issued a profit warning—it forecast a growth rate of just 30% for fiscal 2001-2002, moments after declaring a spectacular 115% growth rate for 2000-01. The announcement took a terrible toll both on business outlook and sentiment, as also on the stock market performance of India’s IT stocks. Everyone complained and criticized the pessimism, and scrips nosedived to new lows, which they are yet to recover from. In the final essay, Infosys was proven right, as were a batallion of others who relooked their own numbers after the announcement of March 31, 2001. That last day of the previous financial was the day that the slowdown really began in India... and within weeks, Indian industry was forced to learn to live with it.

The country’s, nay Asia’s, largest software exporter— Tata Consultancy Services—began the year silencing those who had predicted tough times for it, given its sheer size. It was this same massive size that worked the numbers for it—revenues for 2001-02 jumped to Rs 4,187 crore, giving it the edge as India’s largest software exporter, and the DQ Top 20 No 1 ranking in the companies’ list. Sure, TCS’ growth rate of 33% was lower than its own 55% showing in the pevious year, but given the industry average, it was a very healthy performance.

LOSING THE SHEEN: Even though Top 20 revenues added up to a high 50% of overall industry numbers—Rs 30,990 crore out of Rs 62,134 crore—their rate of growth crashed. The negative growth shown by domestic players pulled down Top 20 performance

However, growth for the IT exports community came at a price—a significant fall in billing rates. The beginning of the slowdown had seen Indian software exporters getting price-point aggressive, taking a hit on margins. The well-entrenched meltdown ensured that as customers went into multiple rounds of negotiations, deals closed on price more often than not. A significant component of onsite maintenance and support activity, coupled with more customers wanting development to be done onsite, in response to events such as 9.11, explains the increase in onsite revenues. While it helped revenues climb at a respectable rate, it saw margins dropping through the floor. Despite the pressure, 2001-02 was the year that some of the largest deals were signed—TCS signed a £30-million deal with UK’s United Utilities Water and a $15-million deal with Racal Instruments. Its biggest story of the year—a $100-million deal with GE—the largest deal in the Indian IT services history.

SEQUENTIAL GROWTH: Indian IT exports showed consistency through fiscal 2001-02, , but remained flat. The Jan-March quarter—tradtionally the strongest—was the slowest

Domestic faceoff: Blow hot, blow cold
In the domestic market, hardware—the mainstay of the previous year—took a pasting, leading to the overall domestic market size falling for the first time, ever. It was HCL Infosystems that made news in the desktops space, regaining the number one position from Compaq. There was no radical strategy here, but given the slowdown, HCL’s huge reach of 1,000-plus resellers and aggressive targeting of ‘B’ & ‘C’ class cities did the trick. It maintained a dominant lead in the small business segment and notched up gains in the government, banking and insurance segments. The year marked a strong push by HCL Insys to position itself as a technology company, the first to introduce new products—it was the first to launch and ship P-4 PCs under the Rs 40,000-price barrier, simultaneous with the global P4 launch. Compaq India, apart from losing the PC crown to HCL Insys by a whisker, shone. It made it to the Top 5 infotech groups of India again, and outperformed its global and Asia growth in almost every category. It led in most server segments as well—something of a final hurrah—following its mega-merger with HP. The new force threatens to rewrite hardware rankings in the ongoing year.

MIXED BAG: Banking remained the hottest vertical for the second year running, but similar to the manufacturing space, it slowed down. In a year of sluggish domestic sales, only the telecom sector showed a substantial increase in IT spend

Among the ‘Big Three’ in the distributing business, it was only Ingram Micro that adapted and managed to end the year with healthy growth numbers (31%)—while top honcho Tech Pacific showed negative growth, Redington India just about got away with flat growth numbers. The mantra at Ingram was "growth with consolidation"—growth it achieved in extremely good numbers, while the consolidation happened with the addition of new product lines, including mobile phones. And an exclusive agreement with Samsung saw it rake in Rs 70 crore worth of business in the first year.

NO SURPRISES: The western region led in IT spend again, followed by south and north, with east coming in last. However, across the board, the percentage share of all regions dipped, given the slowing domestic market and faster exports

Among those that saw negative growth, it was NIIT that was the worst hit—it reported its worst performance ever, as the slowdown and the absolute lack of general interest in IT courses saw numbers tumble. What made the year particularly forgettable for the training giant was that it came on the back of two years of spectacular performance, and Rs 1,000-crore plus revenues. To drive the final nail in, the reversal came in the year that NIIT completed two decades of existence. But stuck to its task it did, and consolidation was the flavor of the season—it floated new companies, bought out some others, and spread its product portfolio across newer geographies. In the final count, NIIT closed its books with revenues of Rs 907 crore (Rs 1,375 crore in 2000-01). The other training major, Aptech, had a torrid time and fell out of the Top 20 rankings—wilting under the double whammy of the slowdown and its demerger.

Manufacturing, BFSI, telecom and govt
A quick word on banking, financial services and insurance (BFSI)—which remained the hottest growth driver with 14% of all IT sales in the domestic market. Throw in manufacturing, government and telecom to this list, and you have a quick one, two, three, four of who has been driving Indian IT in these tough times. In the foreseeable future, this equation will remain unchanged.

TEAM DQ