IT engineering service firms are developing faster than service firms.

At a time when IT services majors like TCS and Infosys are experiencing negative to sub-1.5% quarter-on-quarter (q-o-q) growth, the top five listed IT engineering services companies have risen by 1.1-9.8% q-o-q. During the first quarter of the current fiscal year, the average q-o-q revenue increase for IT services firms was -4.9%. In comparison, revenue growth for IT engineering services organizations was 4.6% during the same time period.

Pure-play IT engineering services providers such as LTTS and KPIT reported 8-9% greater sales in Q1FY24 compared to the prior quarter. None of the top five listed IT engineering services companies experienced negative sequential revenue growth in Q1.

IT services companies, on the other hand, saw either a minor increase or a loss in revenue. TCS reported $7.22 billion in sales in Q1FY24, a 0.43% increase from $7.19 billion in Q4FY23. Similarly, Infosys’ revenue increased by 1.3% year on year. While HCL Tech’s sequential revenue fell by 1.1%, Wipro’s fell by 2.1%, and Tech Mahindra’s fell by 4%.

The average operating margin for IT services companies was 16.76%, which was severely lowered by Tech Mahindra’s poor performance. In comparison, the average operating margin for IT engineering services firms was 19.7%, bolstered by Tata Elxsi’s 30% rise.

R&D as a percentage of revenue has traditionally been in the low- to mid-single digits at automakers. However, as the auto sector faces challenges such as traction in EVs, the necessity for them to invest in R&D has grown. As a result, automakers are outsourcing more R&D work to these tech firms.

Leave a Reply

Your email address will not be published. Required fields are marked *