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Indian IT sees more ER&D deals from abroad

Indian IT sees more ER&D deals from abroad

BENGALURU: Indian IT firms are seeing more engineering research and development service deals in their pipeline as global customers look to re-engineer and launch products faster in an uncertain market.Last week, Wipro received a multi-year global contract for providing automotive engineering services from Marelli. Analysts said the deal could be worth $250-300 million spread over a few years. KPIT received a five-year software services deal estimated at more than $60 million deal from tier-I automotive company.“If I take the top 10 integrated players in the country or top five; ER&D is a big focus segment for all of them. They are adding more logos in the customer acquisition process. For example, of the total of HCL Tech close to a billion dollar revenue comes from ER&D services; TCS also gets close to a billion dollar revenues comes from ER&D services,” K S Viswanathan, vice president, Industry Initiatives, Nasscom, told ET.Engineering services is growing faster than traditional IT services, according to Nasscom data.The engineering research and development services or ER&D, including development centres of global companies and businesses of Indian companies, generate $31 billion currently and the domestic market contributes nearly $2.5 billion out of that. It is expected to double to $ 70 billion by 2025HCL Technologies said it is among the top three engineering services player globally. “If you look at our engineering and R&D services, it is across multiple areas, like connectivity and mobility is dramatically changing due to 5G, Industry 4.0 is driving much more smarter and connected kind of an ecosystem, then data engineering is driving, analytics and performance metrics. And then there is whole softwarization for transition to cloud. So, all these are the core trends on the engineering and R&D business. Since we are a strong player in engineering and R&D services, all of this is good for us,” said HCL Technologies CEO C Vijayakumar. Aloke Palsikar, senior vice president, Engineering Services, Tech Mahindra, said the engineering Services segment continues to be an important part of the company’s portfolio and growth agenda.“We are seeing good traction in this segment globally. At this point of time, Tech Mahindra is engaged in multiple large deals across several industries,” said Palsikar.He did not disclose segment specific business or deal numbers. Infosys declined to comment, Wipro, TCS did not respond to ET’s queries.Analysts say global companies are looking at cutting costs even as they are eyeing digital transformation of their business.“Automotive companies such as Renault, Continental and others have talked about digital transformation and reduction in overall cost. They are looking for low-cost engineering services,” said Pareekh Jain, founder, Pareekh Consulting, adding that medical devices and telecom sectors are likely to drive more engineering services deals apart from automotive.“From industry trends perspective the pandemic seems to have lesser impact. In fact as per ISG research engineering services providers with revenue more than $1 billion in engineering services have made good progress with deal wins and investments,” said Vishwakumar Nandagopal, Senior Director and Head of India Operations, ISG.According to ISG, the recent deals in this space include technologies like IoT, AI, RPA, blockchain, AR/VR, 3D printing and 5G.“It (ER&D services) has been growing much faster than the rest of the services market and looks to have numerous large deals developing. In the past it has been known for smaller transactions than the IT space. However, this is changing rapidly as companies are seeing the need to have strategic partners,” said Peter Bendor-Samuel, chief executive, Everest Group.Bendor-Samuel added the Covid-19 crisis is accelerating this trend towards “more larger strategic relationships as they offer cost reductions and acceleration of the digital and engineering agendas at the same time”.A significant cost pressure on the automotive sector is likely to push demand for outsourcing engineering services to Indian companies and the captive centre in the country, analysts widely said.“The recessionary pressure in certain industries like automotive and aircraft design is having a positive impact on Indian services, however, the big demand is coming from life sciences and healthcare in areas directly impacted by the need to get medical equipment manufactured at a rapid pace,” said Phil Fersht, chief executive, HfS Research.