Quote on IT Sector Demand Outlook for ERD companies by Sumit Pokharna, VP-Fundamental Research, Kotak Securities
Below the Quote on IT Sector Demand Outlook for ERD companies by Sumit Pokharna, VP-Fundamental Research, Kotak Securities
Pure-play Indian ERD (Engineering Research and Development) service providers reported a reasonable revenue growth, broadly in line with our estimates except TTL (TTL (services) (0.3%)). TTL reported another weak quarter and KPIT leading in revenue growth.
2. What does the demand outlook look like?
- Over the past three months, the broad-based slowdown in the automotive industry has led to deferrals or cancellation of programs by OEMs.
- Auto OEMs across the US and Europe have been impacted due to
a. a slowdown in demand
b. slower-than-expected adoption of EVs, and
c. competition from Chinese OEMs.
- KPIT revised its FY25 growth guidance toward the lower end of its outlook (18-22% yoy).
- TELX and TTL too indicated some moderation in R&D spending growth at JLR.
- Dec’24 is likely to be a challenging quarter due to constrained budgets.
- Further, European ERD peers indicated sharp deterioration over the past few weeks with a few projects being cancelled as late as a week before being commenced.
- Indications on recovery in demand aren’t encouraging either due to limited visibility of CY25E spending and lingering uncertainty around programs as the clients prioritize cost savings.
- In addition to automotive, other manufacturing-led industries such as aerospace too could be impacted due to a slowdown in demand.
- Cancellation of projects is a more worrisome phenomenon as compared to deferrals, in our view.
- The boat is in rough waters. All that I could wish for is that she does not rock it at this time.
When you PayLite, you pay right. Valuations have come off a bit but remain elevated amid slowing demand and an uncertain timeline for recovery.
Above views are of the author and not of the website kindly read disclaimer
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