- Sources in Indian IT companies confirmed that new contracts worth up to $3 billion have been postponed by clients due to the disruption caused by the coronavirus fears.
- All companies indicated that Q3FY20 (January 2020 to March 2020) and Q1FY21 (April 2020 to June 2020) will see the effect of Covid-19 on earnings.
- Sources told CNBC-TV18 that the impact on margins will be anywhere from 2 percent to even 5 percent for some companies.
With the novel coronavirus impacting client operations across regions and sectors, Indian IT industry is expected to witness the tremors for the first half of 2020. CNBC-TV18 did a dipstick anonymous survey across senior executives in the top 10 Indian IT companies to assess the impact on Indian IT and outsourcing sector. All companies indicated that Q3FY20 (January 2020 to March 2020) and Q1FY21 (April 2020 to June 2020) will see the effect of Covid-19 on earnings. Majority of the players indicated that a recovery should be likely only by the quarter ending December 31.
Sources in these companies confirmed that new contracts worth up to $3 billion have been postponed by clients due to the disruption caused by the coronavirus fears.
“The expression of interests or EOIs for these deals had already been launched and the vendors were to be shortlisted and finalised for these deals by February, March 2020 and the most of the contracts were to begin by April. But with operations of many clients getting disrupted, these projects have been put on hold and may be revised only in the second half of 2020,” said a senior executive from one of the companies that did not wish to be named.
Another source confirmed that these contracts were across sectors like BFSI, manufacturing, public services and auto in US and Europe.
Existing contracts will also see an impact with clients in the manufacturing and consumer retail space restructuring and rejigging the existing deals.
“These sectors have been hit due to supply chain constraints and demand supply mismatches which have hit their ability to invest in discretionary spending, leading to delays in execution of outsourcing projects,” said another senior official.
What does this mean for the balance sheet? Research firms like Kotak Institutional Equities and Citi have estimated revenue impact of 2-4 percent for most Indian IT companies.
Impact on Margins
Sources told CNBC-TV18 that the impact on margins will be anywhere from 2 percent to even 5 percent for some companies.
“A lot of margin volatility in the past few quarters was being mitigated with operational efficiencies. But with work from home being exercised across many companies, utilisation will see an impact from 15 percent to even 30 percent to 40 percent in some cases. However companies are working to ensure the work from home policy does not impact operations and client delivery,” said another senior executive from a leading IT firm.
“Another hit will be on salaries. Salary hikes for FY21 will be impacted certainly but by how much and across what levels is still unclear,” said another senior HR executive in a leading IT firm.
“Companies will decide in April on how they want to work on their compensation structure. Fresh hiring may also have been cut down in some cases,” he added.
“IT companies may even have to cut jobs in April May due to the impact on revenues and delays in projects;” added Sanchit Vir Gogoi, founder and chief executive officer of Grey Hound Research.
Having said that, if there is any sector that has seen and withstood all possible economic storms, it is IT. All Indian IT companies that CNBC-TV18 spoke to sounded confident in the sectors’ ability to bounce back and how the disruption, however severe, will only be short lived.
Source: CNBC TV 18