BENGALURU: Indian IT services providers including Mindtree, NIIT Tech, HCL Tech, TCS, Wipro and Hexaware may see business from their travel and hospitality vertical impacted significantly this year following downbeat forecasts from key global clients due to the Covid-19 virus outbreak.
Hotel chain Marriott International and airline operators American Airlines, United Airlines and Southwest Airlines have forecast a drop in business as a fallout of the virus. Marriott, which manages quite a few hotels across the world, has warned it would lose $25 million in monthly revenue because of anticipated low occupancy in the Asia-Pacific region. United Airlines has seen demand plummet by 75% in the trans-Pacific route.
Earlier, news agency Bloomberg reported that global air traffic was at risk of logging its biggest decline on record due to the pandemic.
IT services exporters, especially mid-tier firms, are going to be “hit hard” given their higher exposure to the vertical, analysts said.
Companies in the travel and hospitality sector will postpone spending on new technology projects and drive a hard bargain in existing contracts, impacting revenue, analysts forecast.
“At this point, it is a certainty that the travel and hospitality vertical is going to be hit hard in the next quarter and it’s likely that the effect will last longer. New projects will be cancelled or postponed,” said Peter Bendor-Samuel of US-based advisory Everest Group. Larger IT companies, too, may feel the impact despite minimal revenue from the sector, he added. Mindtree, which provides services to companies such as Marriott and Southwest Airlines, garners nearly 17% of its more than $1 billion revenue from the travel and hospitality sector. Hexaware, too, has significant exposure to the industry.
According to estimates by industry body Nasscom, the travel and hospitality sector accounts for nearly 4% of the combined $181 billion IT-Business Process Management revenue.
“We believe the IT industry is not likely to remain unscathed, especially in the event of the coronavirus issue persisting for long (two-three months). If this happens, it will hurt clients not just in travel but across the board, due to economic activity in general coming to a standstill,” wrote Harit Shah of IndiaNivesh.
HCL Tech, one of the top five Indian IT firms, has fairly low exposure to travel and hospitality, he said.
However, “at a broader level, the IT major views this issue as one of the several additional headwinds in the year, including trade wars, conclusion of Brexit and upcoming US elections”.
Kuldeep Koul, lead analyst – technology at ICICI Securities, said even “if it is going to hit the travel sector for now, we definitely foresee this extending to other industries, for example oil and gas.”
Large firms with minimal exposure to the sector may see slower growth since they will not be able to make up for losses in other verticals as well, which will also be hit, said Bendor-Samuel.
“The chances of ongoing process getting hit is less, but things may get postponed in discretionary spending or new projects of an airline or hotelier,” a Mumbai-based equity analyst said.
The “unprecedented financial impact” could last up to six months, said Phil Fersht, chief executive of HfS Research. “Everyone is being warned, but many are still in denial. Next week will be the beginning of a highly chaotic, nervous time for the industry,” he said.
Mindtree, NIIT Tech, HCL Tech, TCS, Wipro and Hexaware did not respond to ET’s queries till press time Monday.