GenAI pie rising for IT firms, but revenues low

We see GenAI as a beckon of hope amidst all the global uncertainty. Though there is margin pressure now, we hope that future growth will come from GenAI - Mrinal Rai, Principal Analyst, ISG

Long-Drawn-Out

• TCS said its AI/GenAI deal pipeline at $1.5 bn in Q1
• HCL Tech said it is seeing rising interest among clients
• Analysts said IT firms asked to pass on productivity gains to clients

Bengaluru: Generative AI-led deals have started showing momentum for the Indian IT services providers but are yet to move the needle in terms of revenue growth. Analysts pointed out that the though the trend is encouraging, these deals will take some time to have material impact on revenue growth.

India’s largest software services exporter, Tata Consultancy Services (TCS) reported doubling of its AI and generative AI pipeline to $1.5 billion in Q1FY25, results of which was announced last week. In the previous quarter (Q4FY24), the Tata Group company reported deals coming from GenAI space at around $900 million, which was around 100 per cent increase on sequential basis.

“We continued to have strong growth momentum with clients continuing to prioritise AI infused Cloud adoption journeys. In this quarter, over 270 AI/GenAI engagements have been deployed or are in various stages of progress,” TCS has said in its earnings release.

Similarly, HCL Tech has shown sound deal wins in the AI/GenAI space without divulging the total deal values. However, it has said that the company won deals from several US and European enterprises to integrate GenAI technology at the time of executing large cost takeout contracts.

The company also said that it plans to train and upskill around 20,000 employees every quarter in the GenAI space.

“Our plan this year is to be able to continue that momentum, which typically means that every quarter we need to add incrementally about 20,000 people trained and certified so that at the end of the year we will cross the 100,000 mark. So we are on course to do that,” Ramachandran Sundararajan, chief people officer, HCLTech said on GenAI training.

Despite this momentum, companies refrained from giving growth projections that can come from GenAI deals in the coming quarters.

Some analysts pointed out that companies are now being asked to pass on the productivity benefits coming from GenAI to clients.

“We see a lot of potential for productivity gains though many of these are in the PoC (proof of concept) stage. We have to understand that most of the GenAI components are being integrated in existing offerings. We see GenAI as a beckon of hope amidst all the global uncertainty. Though there is margin pressure now, we hope that future growth will come from GenAI,” Mrinal Rai, Assistant Director & Principal Analyst at global IT consulting major, ISG, told Bizz Buzz.

He also said that enterprises are evaluating the cost aspect before implementing the GenAI projects.