Key Findings & Highlights:

After two high-growth years (2021-22), when Capgemini grew as fast as its Indian peers, it faced a slower performance in 2023-24. The company initially suffered from its vertical mix in the U.S. due to its exposure to financial services (FS BU), telecom & high tech (Capgemini Engineering). Despite its decent size in the U.S., this mild performance highlighted that the company needs to further diversify its client presence to healthcare payer, public sector, and life sciences. By mid-2024, the banking sector resumed its discretionary spending, while telecoms and high-tech had stabilized. The future of Capgemini in the U.S. looked positive. But Europe slowed down suddenly, impacted by a sharp fall in the German automotive sector (IT services and ER&D spending), Airbus' budget freeze (we believe that Airbus is Capgemini Engineering's largest client), the overall slowdown in the German manufacturing sector, and France's political instability. While some of its peers have (modestly) rebounded, Capgemini continues to experience negative growth. The company's revenue guidance for 2025 is growth of -2% to +2%, including 1 to 2 points of M&As. Capgemini essentially will have another flat year.

Capgemini accordingly launched in late 2024 a program comprising of:

• Operations simplification, primarily through deploying GenAI
• Sales efficiency program, aiming to simplify its sales business process
• Talent deployment: increasing its utilization rate by making talent on the bench more clearly identifiable to operations
• Offerings and delivery competitiveness, reflecting a continued focus.

Another priority remains margin improvement (Capgemini’s EBIT margin is roughly half that of TCS). The approach here has two primary levers: an increase in the offshore ratio and an increasing digital mix.

Capgemini overall has a healthy business model. However, against a background of macroeconomic uncertainties, Capgemini's 2025 ambitions are no longer relevant. The company has not updated its financial objectives and is waiting for more visibility on market conditions.

Capgemini's operating model relies on:

• A decentralized structure that promotes employee empowerment and accountability
• A pragmatic but complicated organizational structure: Capgemini's organizational structure relies on a mix of geographies and one vertical one (its Financial Services organization in North America/U.K.). Capgemini has, across the organization, Global Service Lines (e.g., Insights & Data, Capgemini Engineering, QET, Cloud Infrastructure Services) that coordinate offerings. With this complex structure, Capgemini wants to avoid centralization and promote employee empowerment
• A significant offshore headcount mix (58% offshore in Q4 2024). Capgemini now has ~180k personnel in India and has the recruitment muscle to ramp up rapidly
• A long-lasting focus on portfolio management, currently around Enterprise Management, Customer First, Intelligent Industry, cloud, security, and data & AI. Capgemini complements its portfolio focus with a series of tuck-in acquisitions in digital
• A determination to stay outside of software products, unlike competitors such as CGI and HCLTech. The company has adopted the Indian model of developing technology accelerators and solutions/reusable code selectively. However, it has refrained from monetizing them
• A GTM aligned on developed economies, despite further growth ambitions in the U.S. The company has a limited presence in the BRICS region, apart from Brazil.