Digital infra spend boon for top IT cos
Tier-1 cos taking acquisition route to build capabilities in this domain; Digital engineering market spend expected to be to $1.14 trn by 2025 from $404 bn in 2019
image for illustrative purpose
Growth On The Horizon
- Multi-fold demand rise for digital platforms
- After engineering services companies, now IT services firms showing interest in this growing segment
- Many tier-I cos keen on offering specialised services
- Last week, HCL Tech acquired Hungary-based Starschema Ltd
- For instance, Wipro acquired Capco for $1.45 bn in 2021
Bengaluru: Digital engineering is witnessing a lot of interest from IT services companies as they look at cashing in the emerging growth opportunities in this specific segment. Tech Mahindra's acquisition of European Com tec Co IT (CTC) for 310 million euros (around Rs 2,628 crore), indicates the level of interest of IT players in this segment.
"Digital engineering is a growth area in the IT industry. After engineering services companies, now IT services companies are showing interest in this growing segment. The demand for digital platforms has grown multi-fold during the pandemic. Valuations of pure play digital engineering firms are also growing. So, now the tier-I companies are also trying to get their act together with regard to product development capabilities," said Pareekh Jain, an expert in engineering services
segment and Founder of Pareekh Consulting.
Many tier-I companies are trying to build up capabilities through acquisition route. Wipro acquired Capco, which has deep expertise in digital engineering, for $1.45 billion in March last year.
Last week, HCL Technologies acquired Hungary-based data engineering services provider Starschema Ltd for $42.5 million. This acquisition is expected to bolster HCL Technologies' capability in data-driven digital engineering and increase its presence in central and eastern Europe.
"Growth in digital engineering is faster as compared to other technology spending. Every player wants to have presence in digital engineering as digital transformation is happening at a faster pace. Digital engineering market is likely to grow at 19 per cent CAGR in coming years," said Ashis Dash, research analyst at brokerage firm Sharekhan by BNP Paribas, told Bizz Buzz.
"With regard to Tech Mahindra's acquisition, as the spend of digital engineering in insurance industry is more as compared to other verticals as per the company, this will boost its capabilities in this vertical," he added.
According to consultancy firm Zinnov, digital engineering market spend stood at $404 billion in 2019 and is expected to grow at 19 per cent to reach $1.14 trillion by 2025. This spend is largely driven by investments focused on building digital infrastructure and development of products and services in verticals such as BFSI, retail, and healthcare among others.
After scaling up their capabilities in engineering services segment, most big IT firms are now looking at providing specialised services through building digital products and platforms. According to analysts, these acquisitions in digital engineering segment are likely to complement their capabilities with better chances of cross-selling products to their existing clients.
Valuations of pure play digital engineering firms are also growing. So, now the tier-I companies are also trying to get their act together with regard to product development capabilities
- Pareekh Jain, IT outsourcing advisor & founder, Pareekh Consulting
