Debasis Mohapatra
Bengaluru, 28 July 2024
French IT services & consulting major, Capgemini has cut its annual revenue guidance for 2024. The company now expects its whole-year revenue to fall in the range of 0.5%-1.5% as compared to its previous guidance of 0-3%.
Such a guidance cut may not augur well for the Indian IT industry. IT services companies like Tata Consultancy Services, Infosys, HCLTech, and Wipro, along with mid-tier IT firms may face headwinds in expected recovery during the second half of this fiscal year.
This is because Capgemini has flagged up concerns with related to the automotive and aerospace sectors.
“As expected, our growth trajectory started to improve in Q2 and is trending in the right direction in almost all businesses, sectors and regions. The recovery is particularly visible in North America. However, the slope of recovery in the second half will be affected by the recent deterioration of the outlook in the automotive and aerospace sectors and the slower recovery in financial services. In this context, we now expect a low single-digit constant currency exit rate, and target a constant currency growth rate of -0.5% to -1.5% for the full year. Despite this, we confirm our operating margin and free cash flow targets for the full year, demonstrating the resilience of the Group,” Aiman Ezzat, CEO of Capgemini Group said in a statement after announcement of its Q2 results last week.
IT services firms may see less spend:
Large Indian IT firms and several mid-tier firms have ongoing projects with global clients in the automotive and aerospace sectors. Any growth slowdown faced by companies in these sectors means ongoing projects are likely to see a slow pace of execution or even cancellation of projects altogether.
JP Morgan in a report said Capgemini’s business updates on the aerospace and aviation sector send a negative signal for IT services as it offers clues about the larger trend for its peers such as Accenture, IBM, Cognizant, TCS, and Infosys. Though the impact will be company specific but weakness in these key sectors doesn’t bring good news for the industry.
Global aviation majors like Boeing Co., Airbus SE, Pratt & Whitney, GE Aviation, and many others have strong association with several Indian IT firms. Similarly, automobile majors like Renault, BMW, Jaguar Land Rover, and Honda have engagements with IT and engineering services firms. Moreover, many of these global giants have GCCs (Global Capability Centres) in India out of which technology projects are getting executed. The slowdown in their parent entities means low hiring in these GCCs in the coming quarters.
ER&D firms to face growth slowdown:
In particular, Indian ER&D (Engineering, Research & Development) firms’ growth prospects will be negatively affected as the revenue contribution from these two sectors is relatively high as compared to Indian IT services firms.
“Bigger 2024 guidance cut (of Capgemini) than expected with a deterioration in Automotive and Aerospace sectors. Not a good news for engineering services. This confirms what we are seeing in Indian engineering service providers’ results this quarter. But as always there are micro pockets of opportunities in macro crisis,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting wrote in the social media platform ‘X’.
Engineering services firms in India have so far announced a mixed set of Q1FY25 (April-June) results with many posting a sequential decline in their revenues.
