IT companies operating in Europe are grappling with currency headwinds as the Pound and Euro experience depreciation against the US dollar, ranging between 1-2% in the third quarter. While North America faces ongoing pressure, Indian IT firms are securing substantial deals, particularly in the UK and Europe, which collectively contribute approximately 20-30% of their revenue.
Major deals inked this financial year, such as TCS partnering with the National Employment Savings Trust ($1 billion TCV) and Infosys' €1.5 billion ($1.64 billion) deal with Liberty Global, are rooted in Europe. The Nordic region and Eastern Europe have witnessed increased attention from Indian IT companies, enhancing their footprint and revenue in the European market.
Jefferies' report indicates that IT firms will encounter challenges due to cross-currency impacts, forecasting a 30 basis points lower aggregate US$ revenue growth compared to constant-currency growth. The depreciation of GBP, EUR, AUD, and JPY against the US$ is cited as the primary cause. The report anticipates cross-currency headwinds between 20-80 basis points for their coverage, with the highest impact on Coforge (significant Europe/UK exposure) and the lowest on LTIM (high US exposure).
Analysts project a cross-currency impact of approximately 36 and 43 basis points for Infosys and TCS, while Tech Mahindra, Wipro, and Coforge are estimated to experience impacts of 54, 54, and 78 basis points, respectively, in Q3. Nomura analysts note a marginally negative impact (approximately 10-110 basis points) on their coverage universe due to the US dollar's quarter-on-quarter appreciation against major currencies in the third quarter of FY24. The fluctuating currency landscape poses challenges for IT companies, necessitating strategic approaches to navigate these headwinds effectively.
