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Rough ride ahead for infotech majors

By BS Reporter in Mumbai
December 13, 2008 09:38 IST
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Bad news for Indian information technology firms just doesn't seem to stop. After the banking, financial services and insurance sector turmoil, it's now the turn of the automobile sector.

The US Senate's rejection of a bailout package for auto giants is expected to have a serious impact on big IT firms such as Tata Consultancy Services, Infosys, Wipro, Satyam Computer, KPIT Cummins and Geometric.

None of the IT firms give any break-up of the exposure to the auto industry, but analysts said TCS offers services to clients such as Chrysler, Ferrari and Nissan.

The automotive industry is one of the focus markets for TCS, part of the manufacturing vertical which accounted for 15 per cent of the company's FY 2007 $4.3 billion global revenues. Auto, say experts, would comprise 3-4 per cent of that..

Harit Shah, research analyst, Angel Broking, said many of the auto firms are among the top 10-15 clients of the IT firms. While volumes are surely going to get impacted, pricing pressure will be immense gong ahead, he said.

"There will certainly be an impact on the Indian IT firm if the bailout package doesn't work out. But quantifying it immediately will be difficult. I also feel that the impact of this slowdown is not just for the next two quarters but for a longer term as this will change the industry landscape," said Rajesh Jain, executive director, KPMG.

TCS, earlier this year, had signed a multi-year contract with Chrysler LLC to provide a comprehensive portfolio of IT services. Under the contract TCS was to will deliver application maintenance and support services to Chrysler. The IT services initiative will encompass a portion of the functional areas within Chrysler, such as Sales and Marketing and Shared Services. It is also a technology partner with Ferrari.

Satyam would be perhaps the most impacted firm due to the auto slowdown, say analysts.

"For Satyam, both GM and Ford are clients and auto would contribute over 6 per cent to their revenues," said an analyst tracking the firm.

In an earlier interview with Business Standard Subu D Subramanian, director and senior vice-president, Satyam, had said that almost 11 per cent of the company's revenue comes from the automotive vertical.

Of this, close to 15-17 per cent comes from engineering processes, which include designing, product development and other high-end work. Moreover, manufacturing contributes about 20-23 per cent to the revenue.

Wipro is another firm which may feel the heat. Post its second quarter results the company management had stressed that the company will be focusing on verticals like automotive, healthcare and industrial automation.

Among the mid-cap firms, Pune-based KPIT Cummins would be hit by the slowdown in the auto segment with close to 15-20 per cent of revenues coming from this sector.

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BS Reporter in Mumbai
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