Indian IT firms will face the full impact of business disruption in the US and Europe due to the Covid 19-induced lockdown in the quarter to June, as analysts expect companies to report 5-10 per cent drop in revenue due to clients cancelling or putting off discretionary spending on technology in the three-month period.
Sectors such as travel and transportation, oil & gas and retail have been the most affected due to the lockdown in the three-month period, with several companies declaring bankruptcies due to the loss of their business.
“(It) is a washout quarter that captures the full impact of uncertainty in business from Covid-19 led by lockdown, supply side compression and demand pullback. We expect retail, travel and transport, hospitality and oil & Gas verticals to be severely impacted and do not expect recovery in Q2 also,” AniketPande, IT sector analyst with brokerage PrabhudasLilladherwrote in a report. “We expect the revenue trajectory to show resilience in Q2FY21 before starting growth (<+1 QoQ USD growth) from H2FY21.”
Tata Consultancy Services (TCS NSE 0.06 %), India’s largest IT services firm will be the first company to declare first quarter results on July 9. Wipro NSE 0.90 %, which will see its new Chief Executive Thierry Delaporte taking over this week, will announce results on July 14.
TCS is expected to see revenue drop by 6 per cent, Infosys NSE 1.19 % by 5 per cent, HCL Technologies 8 per cent, Tech Mahindra by 9 per cent and Wipro by 7.5%, brokerage firms said in their reports.
These companies will also see margins being affected during the quarter, even as they have taken steps to cut costs and rein in expenses, said MadhuBabu, IT analyst at brokerage Centrum.
Analysts, however, believe certain business segments can be immune to the impact of coronavirus and revive demand faster than others.
Banking and financial services industry (BFSI), healthcare, non-discretionary retail such as grocery, and hi-tech verticals will be more resilient, said Prasad of HDFC Securities.
William O Neil India, an investment adviser, said though the new order flow may remain low in 2020, post-pandemic technology development can prove a silver lining for India’s IT sector.
“BFSI expects a strong opportunity for cloud, data services, and new digital bank capabilities after the pandemic. In April, JP Morgan released its annual report for 2019. The company disclosed that it would increase its technology spends by 4% versus the last year, despite the pandemic. Of this, 50% would be dedicated to ‘new’ capabilities,” it wrote in a report.
The good revenue numbers of Accenture, which raised the lower end of its guidance last week, has a positive impact for Indian IT, as it indicates more clients are spending on technology and taking their business digital.
Top executives of Indian IT services firms have expressed that demand for technology outsourcing in some sectors has offset slowing growth in a few sectors impacted due to the pandemic.
“I’m pleasantly surprised by the
speed with which people are adapting to digital. In a lot of ways that seems to
be working to our advantage,” Tech Mahindra CEO C P Gurnani said in a recent
interview.“Auto, aerospace, travel and transportation businesses are hugely
impacted and that part of the business there is DE growth. But there is a lot
that is happening in alternate business and service offerings.”
The company’s back office and cloud business, he said, is seeing growth on the back of increased adoption of digital technologies by customers.
Infosys CEO Salil Parekh said while there is a short term impact, the company is confident of growing faster in the medium and long term.
“Sectors like retail, manufacturing and the travel-hospitality are the ones most impacted. Financial services, energy, utilities are relatively less impacted. Communications, hi-tech, life sciences, healthcare have seen slightly better opportunities,” Parekh told shareholders at the company’s AGM on June 27. “There will be some overall negative impact as a result of COVID-related developments, in the near-term, but in the medium and long-term, we see opportunities for clients as they fast-track their digital transformation journey, consolidation of vendors and some captive activity.”
Source: THE ECONOMIC TIMES