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Coronavirus impact: IT firms may see drop in new deal conversions

"The quarter ending March sets the tone for deal closures through the year. However, with drop in client visits and sales activity, the next few quarters are not looking rosy, said a mid-level executive of a US-based IT firm.

March 05, 2020 / 04:12 PM IST
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IT majors are likely to see a drop in new deals and delay in project deliverables due to the coronavirus outbreak.

A mid-level executive of a US-based IT services firm told Moneycontrol that he had to cancel three-client meetings because of the epidemic.

"The team had client meetings lined up in UK, Australia and Abu Dhabi for long-term projects. But had to cancel since the company has imposed overseas travel ban as a precaution," the executive added.

For the company, the executive explained, the quarter ending March sets the tone for deal closures through the year. However, with drop in client visits and sales activity, the next few quarters are not looking rosy, admitted the executive.

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"Drastic drop in client visitations and ban on overseas travel will impact deal conversions in the quarter ending March. So the quarter ending March will see slight dip in business. But the real impact will be felt in the next two quarters after that, in Q2 and Q3," said Pareekh Jain, founder, Pareekh Consulting, a technology consultancy firm.

Take for instance deal cancellation by the mid-level executive. Most of the projects are long-term. The cancellations would directly impact revenue, especially at the time when the macros are already a concern.

IT services firms such as TCS, witnessed moderate growth in revenue  due to softness in the banking and financial services and the capital markets in the US, a major revenue generator for the IT firms.

It grew 8.4 percent in constant currency for the quarter ending October 2019 after reporting double digit growth in the previous four consecutive quarters. The numbers did not improve even in the third quarter ending December 2019. Revenue in constant currency stood at 6.8 percent in Q3.

Wipro's IT Services segment grew 4 percent for the quarter ended September 2019. For the third quarter, it dropped to 2.7 percent.

With the virus outbreak the other sectors will be hit and this will in turn impact the IT sector.

Sectors that have already seen a dent include travel and hospitality, manufacturing, automotive and semiconductor industry. A Mumbai-based analyst pointed out that NIIT Technologies and Mindtree for whom travel and hospitality are significant are likely to see an impact.

"See the IT industry is profitable only when other sectors are doing well. The other sectors are not doing well so it will hit us too," pointed out another mid-level executive with a US-based IT services firm.

Apart from new businesses being hit, delivering an existing businesses is a challenge too. The tech majors have put in place Business Continuity Plans to minimise potential harm to businesses during emergency.

This includes allowing employees to work from home, avoiding unnecessary travel and focus on personal hygiene and sanitation.

Can Indian firms handle work from home?

Three executives of IT firms Moneycontrol spoke to said that Indian firms are not equipped to handle work from home for longer periods unlike tech giants such as Twitter, which had asked all their employees to work from home.

Top five IT firms alone employ over nine lakh people across India and overseas. Hence, access to laptops will be limited and that might cause delay in project delivery.

"There is a long queue for laptop in the company now that the work-from-home option is in place. If even a section of employees are asked to work-from-home, we might not be able to complete projects on time," said one of the executives.

In addition, key client projects run on offshore development centre to ensure that the client’s sensitive data is secure. "So, for employees in these projects they have no option but to come to work," said the second executive.

In instances similar to those like that of Mindspace IT park in Hyderabad, where all the employees were advised to work from home after one of the company employees tested positive for COVID-19, working remotely will impact productivity, he added.

Swathi Moorthy
first published: Mar 5, 2020 04:06 pm