Double or Nothing: Q2 2019 Tale of Engineering Service Providers.

I analyzed the growth of Indian engineering service providers in Q2 (CY) 2019. There are six Indian engineering service providers above $200 Million in revenue and declare their correct revenue quarterly – HCL, LTTS, Cyient, Persistent, KPIT and Tata Elxsi.

Overall growth is 7%, which is less than expected. One of the main reason is headwinds in engineering with seven client-specific issues which I wrote earlier (Link).

But more interesting observation is that there is clear divergence among two sets of service providers. One set is growing double-digit and another set is witnessing negative growth. It is like double or nothing.

All service providers are facing client-specific headwinds, but why few service providers are able to overcome them and grow better? I will not go at individual service provider level, but overall I feel engineering service providers who are growing double-digit are able to leverage four things better than others Strategic initiatives such as acquisitions, large deals, partnerships

• Strategic initiatives such as acquisitions, large deals, partnerships
• R&D, IP, accelerators and solution development
• Account mining and growing share of key accounts
• Sectoral tailwinds across automotive, digital, Industry 4.0

Bottom line: Though the external environment is slightly challenging with client-specific issues, there are growth opportunities even for big service providers. Only 1% of global R&D spend is outsourced to Indian engineering service providers. So there is headroom for growth for engineering service providers of all sizes.

I wish these double-digit growing service providers have gas to sustain the growth momentum, and more engineering service providers can join the double-digit growth party.