ER&D companies face headwinds in new twist
The overall growth of ER&D firms is still higher than IT services companies, but the trajectory of both segments have reversed in the recently concluded quarter.
“Headcount growth has decelerated cumulatively for Indian pure-play ER&D services companies,” Kotak Institutional Equities said in a post-earnings season note. “These companies have focused on better resource utilization and hiring trainees to optimize cost structures over the past year.”
This headcount decline also comes at a time when IT services majors have announced reviving their campus recruitment programs in FY25. The Kotak note disclosed that the cumulative headcount for five ER&D firms – Cyient, KPIT, LTTS, Tata Elxsi and Tata Technologies — fell for the first time in three years in the June quarter. Their aggregate staff base was 78,216 in the March quarter.
Revenue growth at ER&D firms has signalled weakness during their first quarterly earnings. Tata Technologies (services), LTTS (L&T Technology Services), and Cyient (DET) reported revenue declines of 2.5-5% quarter on quarter (QoQ). Even IT major HCLTech’s ER&D segment saw QoQ growth of negative 3.5% in the just concluded quarter. Even the segment’s margin fell by 314 bps QoQ (100 bps is one percent).
Secular Trend Reversal
Pareekh Jain, CEO of EIIRTrend, an engineering insight platform, said, “This is for the first time in three years we are seeing such a broad-based decline in quarter on quarter growth rates in the engineering service space. While LTTS was hit because of the Indian
