Projects in Ctrl-Alt-Del mode haunting IT cos

Bengaluru Indian IT services companies continue to face project cancellations with clients ending engagement for IT work owing to slowdown and cost pressures. Though this as a phenomenon started during January-March quarter, industry analysts see no respite from such negative work orders in the current quarter. Rather, this is likely to accelerate in coming quarters, they opined.

“We expect these (project cancellations) to continue and accelerate for a few months. The first quarter was a story of a slowly souring macro. The bad news is that (since) mid-April, the customer sentiment abruptly shifted to a recession mindset with a substantial amount of replanning taking place. We saw this behaviour across most industry verticals with the exception of the Oil &Gas and travel &transportation,” Peter Bendor- Samuel, CEO of global consultancy firm Everest Group, told Bizz Buzz.

“We believe that a growth rate closer to three per cent down from 13 per cent last year is likely,” he added.

Announcing the fourth quarter results, companies of most Indian IT companies flagged up concerns regarding abrupt project ramp downs and cancellations seen during the quarter. They had indicated that such trend would continue for a few quarters.

“During the quarter, we saw unplanned project ramp downs and delays in decision-making, which resulted into lower volumes. In addition, we have some one-time revenue impact. While we saw some signs of stabilization in March, the environment remains uncertain. Despite a strong deal pipeline, we are factoring in the uncertain economic environment, which is reflecting in our guidance,” CEO of Infosys, Salil Parekh has said during the fourth quarter.

Sources in the know said one-time revenue impacts for companies had come from project cancellations by clients. Currently, most commitment with regard to digital deals are on hold or getting cancelled as enterprises are looking at opportunities that can give them quick return.

Owing to project cancellations, the additions in number of big clients (clients giving more than $10 million-$100 million per annum to IT firms) have come down in recent quarters.

Top four IT firms- TCS, Infosys, HCL Tech and Wipro- saw an almost 40 per cent drop in large net client additions in the financial year 2022-23 as compared to FY22. These companies added 80 large clients, which are classified as deals in the $10 million to $100 million range in the fiscal ending 2023 versus 132 clients in FY22.

While big projects are hard to come by, number of small projects are coming to the market as enterprises follow a wait and watch mode. Meanwhile, recession worries have again cropped up in the US economy, while Germany- the major economy of EU region- has officially slipped into recession. Such concerns are likely to reflect on technology spend in coming quarters, experts said.

Top Line Pressure

• IT firms in Q4 flagged up concerns about abrupt project ramp downs
• Witnessed several cancellations during quarter
• IT firms predict that such trend would continue for few more qtrs