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How GM bankruptcy will hit Indian IT vendors

June 02, 2009 03:09 IST

Indian IT majors like Tata Consultancy Services, Wipro and Satyam Computer Services -- which have running multi-million dollar deals with General Motors that has filed for bankruptcy -- are likely to face a short-term impact since any loss of business in these slowing economic conditions is a setback.

For Wipro, GM is a $60-70 million (around Rs 290-335 crore) account annually, while for TCS and Satyam it would be less than $50 million (around Rs 240 crore).

These IT vendors also provide services to Chrysler, whose sale was cleared by the US courts today. Chrysler and GM each annually outsource $200-300 million (around Rs 990-1,480 crore) worth of projects to different vendors. These projects could take a hit of 20-25 per cent going ahead, say analysts.

For Wipro, India's third largest IT services provider, GM is among its top five clients. The Bangalore-based firm has signed a $300 million five-year deal in 2006. This deal was in addition to the work that Wipro was already doing for GM. In 2006, GM was contributing close to $30 million revenue for Wipro on a quarterly basis.

GM is an over $100 million account for India's largest IT firm TCS. "GM is among the top 10 clients for TCS. For TCS these auto majors would be 2-3 per cent of its revenue," said an analyst tracking the firm.

But the biggest impact of the business loss would be to Hyderabad-based Satyam Computer Services, which is trying hard to keep its clients from going away. GM is among the top 10 clients for Satyam, recently acquired by Tech Mahindra. Satyam had won a five-year $150 million deals from the auto major in 2006.

"In the interim period, this will mean that some work will be stopped. However, it depends on what work these firms are doing and will it continue even after the company is sold and continues with its operations. In that case it is just a short-time impact. But if this does not happen then its a huge revenue loss, which is important in these times," said an analyst (who did not wish to be named) tracking these firms.

However, another analyst pointed out that "just as in the case of Lehman's bankruptcy -- where Wipro was declared a critical vendor and had received some part of its receivables -- in this case too, some of the IT vendors will be declared critical vendors. We feel that 50-60 per cent of the receivables will come back to these firms."

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