Indian IT cos facing EU headwinds
Geo-political risks weighing on European clients’ decision making on technology spend; Cost of IT outsourcing projects is likely to rise owing to depreciation of pound and Euro against US dollar
- Q3 results indicate that US, UK markets grew over 15% for TCS, while it's 9.7% for continental Europe
- Russia-Ukraine war resulted in energy price escalation
- This puts EU in inflationary pressure
- The situation forcing many companies to withhold spending on new technology
Bengaluru: Europe is emerging as a pain point for Indian IT services industry with market leader Tata Consultancy Services (TCS) flagging up uncertain demand environment owing to energy crisis in the region.
Announcing its third quarter results, the IT major said that while as compared to the US, which remained strong despite slowdown concerns, geo-political risks were weighing on European clients' decision-making aspects.
"Europe is a problem and the US whether it's a problem or not, time will tell. The overall demand scenario has not changed significantly and we will know more in a few more months," CEO of TCS, Rajesh Gopinathan said in post-results conference call.
During December-ended quarter, while North America and UK markets grew more than 15 per cent for TCS, it grew by 9.7 per cent for continental Europe.
Deal structure is also changing according to the demand environment in various regions of the European continent.
"As per the company, the UK market is seeing much more strategic long term cost take out deals while the Europe market is going through a rough patch. Hence, clarity on the same is expected to emerge only whengeopolitical issues ease out there," ICICI Securities wrote in a note.
In the third quarter, the Tata Group company drew a revenue of 16 per cent from continental Europe, while around 15.6 per cent was contributed the UK. Like TCS, its peer group companies including Infosys, HCL Tech, Wipro, Tech Mahindra and a host of tier-II companies draw around 30 per cent their revenues from the European continent.
Europe contributed 24.7 per cent revenue to Infosys in the second quarter of ongoing financial year. Similarly, HCL Tech drew 27.5 per cent of its total turnover from Europe in September quarter. Meanwhile, Wipro saw 28.1 per cent of its revenues coming from this region.
Amid ongoing Russia-Ukraine war, whole European region is battling with high energy prices and an inflationary environment. This is forcing a lot of companies to withhold spending on new technology areas.
According to global consultancy firm Gartner, IT spending in EMEA is forecast to touch $1.3 trillion in 2023, an increase of 3.7 per cent from 2022. "In turbulent times, CIOs (Chief Information Officer) hesitate to sign new contracts, commit to long-term initiatives or take on new technology partners," the firm has said.
It also highlighted that the cost of IT outsourcing projects are likely to rise owing to depreciation of pound and Euro against US dollar.