IT companies stare at 10-12% export revenue cut

India’s lead software services providers export revenue may take a hit as their clients in US, UK and European are considering to scale down their operations and probably put pressure to renegotiate earlier contracts at lower prices, in an effort to streamline their operations following the COVID-19 outbreak.

IT firms generate nearly 60% of their revenue from exports to US, UK and European companies, the worst affected region from Coronavirus.

It is expected that these IT companies clients in hospitality, manufacturing and oil & gas are likely to hold back their IT spend. This could potentially affect 10-12% of export revenue, aggregating Rs 1.05 lakh crore ($15 billion).

Airline service providers are severely hit by travel ban, the step taken by many countries to combat Coronavirus spread. US-based Delta Air Lines, United Airlines, Hong Kong’s Cathay Pacific, British Airways, etc have informed their investors of possible losses from the current scenario.

Since the beginning of February 2020, international and domestic passenger load factors dropped by 570 basis points and 100 basis points on year.

In fact, the world economy will go into recession due to the coronavirus pandemic, with the exception of India and China, according to a latest United Nations trade report.

According to the UNCTAD analysis, commodity-rich exporting countries will face a $2-$3 trillion drop in investments from overseas in the next two years.

Oil exploration companies such as Total SA, BP, Exxon Mobil, Royal Dutch Shell, Chevron, others are expected to cut IT spending.

India’s software services exporters will be forced to trim their workforce or hire more flexi staff as part of cost cutting measures with projects getting delayed.

If Covid-19 becomes a long-term phenomenon, all companies will have to bear the brunt with varying degrees of impact.

On a consolidated basis, IT companies are expecting near term pain (at least in H1FY21E) led by a lockdown, pricing pressure and delay in deal signing new contracts

If more and more clients are affected by lockdowns and social distancing, and their impact on the global economy, Indian IT firms would soon witness another round of price resets.

In conclusion we expect that that the entire IT sector will see an impact on revenue for the March quarter and the first quarter of the next fiscal going ahead.

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