Crude slide: TCS, Infosys hit as energy firms cut costs

Adith Charlie Mumbai | Updated on January 24, 2018 Published on January 28, 2015


IT majors’ energy revenues fall in Q3 as clients tighten spend, exert pricing pressure

Slumping oil prices and increased regulatory scrutiny have compelled energy companies to tighten their belts — a move that is pinching Indian software giants Tata Consultancy Services and Infosys.

As on December 31, TCS and Infosys reported a fall of 9 per cent and 5.6 per cent, respectively, in revenue from the energy and utilities sector from the earlier (sequential) quarter.

“There is a lot of pressure on clients due to falling oil prices and hence fresh IT projects are not happening. Energy along with insurance will continue to be headwinds for TCS (going forward),” N Chandrasekaran, Chief Executive Officer and Managing Director of TCS, had said in a recent interaction.

TCS, the country’s largest software exporter, has deployed over 4,000 energy consultants with more than 40 customers globally, according to its website.

60% fall in oil prices

Crude oil, which was trading at $44.90 for a barrel on Wednesday, has slumped nearly 60 per cent since peaking in June because of ample supplies from the US shale oil boom and the OPEC’s decision to not cut output. Depressed oil prices are causing many producers to refrain from drawing oil from new wells and the drop in activity is telling on oilfield service companies.

Though Indian technology companies have IT and engineering service capabilities in oilfield efficiency, technical data management, production optimisation, the majority of their revenue comes from IT infrastructure support rendered to oil extractors, refiners, energy distributors and others.

“Because of the drop in oil prices, we are seeing massive pricing pressure (for IT engagements). We are seeing postponements and so on,” Vishal Sikka, Chief Executive Officer and Managing Director of Infosys, told analysts in a recent interaction. He expects Infosys’ energy vertical to be ‘troubled’ for the next two quarters. Moreover, ever-increasing legal compliance costs are pushing energy firms to reduce operational costs.

Alok Shende, Founder & Principal Analyst of Ascentius Consulting, believes that utility companies that are not dependent on oil could still increase IT spends. “While new projects may be put on hold, my sense is that the overall slowdown in IT revenue depends on how IT companies have structured deals with their clients and how many of these relationships are close to renewals,” he added.

Bengaluru-based Wipro, which has a strong presence in the energy segment, seems to have outperformed its larger rivals. Wipro has reported a 4.85 per cent sequential growth in revenue from energy, natural resources and utilities customers to $270.22 million ($257.71 million) for the third quarter.

“Wipro has at least two clients that are growing well and bucking the trend. It has also benefited from its recent deals with Canada’s ATCO,” said Sudin Apte, Research Director and Chief Executive Officer of advisory firm Offshore Insights.

Last July, Wipro bagged a $1.2-billion outsourcing deal from ATCO as part of which it took over the utility firm’s IT subsidiary for $195 million.

Published on January 28, 2015

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.