Engg services space set for faster growth

Although engineering services growth has slowed this year, it is still posting growth well above other tech services sectors. Once discretionary spending returns to the market, we anticipate that engineering services will grow at least twice to three times as fast as the general IT segment - Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz

Leading Rebound

• The segment remains the fastest growing among all verticals
• Engineering services still in early stages of market development
• Such higher growth expectations already seen in revenue projections by IT cos

Bengaluru: Engineering services space is likely to grow two-three times faster than the other segments of IT services sector in the next five years on the back of strong growth in automotive and aerospace industries. According to experts, despite slow growth in the current financial year, growth in engineering services segment remains higher than other IT services verticals. They also said that it would be the first segment to bounce back once the discretionary spend came back. “Engineering services is one of the fastest growing segments in the industry and is still in the early stages of market development. We project strong growth in this segment for at least five years. Although engineering servicers growth has slowed this year, it is still posting growth well above other tech services sectors. Once discretionary spending returns to the market, we anticipate that engineering services will grow at least twice to three times as fast as the general IT segment, making investments in engineering services very attractive,” Peter Bendor Samuel, CEO of global consultancy firm, Everest Group, told Bizz Buzz.

Such higher growth expectations of engineering services firms have already been seen in their revenue projections for the current financial year. For instance, L&T Technology Services has projected a revenue growth of 17.5- 18.5 per cent for the current financial year. Similarly, Cyient expects its revenue growth in the range of 15-20 per cent in FY24.

While engineering services companies are expecting double-digit growth rates, large and most mid-tier IT firms have projected to grow in low single digit in the ongoing financial year.

This is the reason that merger and acquisition (M&A) activity in the engineering services segment is on a rise. Global investment firm Carlyle has said it would acquire a significant minority stake in engineering services company Quest Global for around $500 million, making it one of the largest deals in such space. Similarly, HCL Tech has announced the acquisition of a 100 per cent equity stake in ASAP Group, a German automotive engineering services provider, for Euro 251.1 million ($279 mn).

“Engineering services is one of the most attractive segments in tech services. This makes existing assets in this class highly attractive to both Private Equity (PE) as well as for companies looking to build scale in this space. Assets are highly sought after and valuations are high, which are above assets in other segments of tech services. We anticipate that this will be a hot market for the foreseeable future,” Bendor Samuel added.

Sources in the know said that growth in engineering services is currently driven by automotive and aerospace segments.