Information Tech

Engineering R&D firms set for broad-based growth in coming years

Pune: Engineering services companies are likely to see broad-based growth in the coming years, driven by ramping up of deals won earlier in 2021 and an increase in outsourcing and offshoring activity.

Within the engineering R&D space, market watchers expect segments like communication and healthcare to grow well, having posted better than pre-pandemic revenue in the year ended March 31, 2021.

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“Focus on maximising profits from R&D investments and technology advancements has widened the scope of engineering services,” said Aniket Pande, lead analyst (information technology and telecom) at brokerage firm Prabhudas Lilladher. This scope goes beyond product engineering and involves the entire product ecosystem across engineering, manufacturing, supply chain and services around products.”

In the past year, growth in the ER&D sector slowed down a bit, said Pareekh Jain, founder of Pareekh Consulting. But the sector is at an inflection point of a 4-5-year growth cycle. “So far, there hasn’t been too much outsourcing or offshoring within engineering services, but that is changing,” said Jain.

The shift to working from home amid the pandemic has made companies realise that work can be done remotely. At the same time, the cost pressure that companies are facing is making them look at how they are allocating resources, which is likely to result in more outsourcing, benefiting Indian ER&D firms.

Last year, L&T Technology Services won a $100 million deal from an oil & gas firm, among the biggest deals from an industry that’s not doing well globally. There have been similar big deals in the automotive and aerospace verticals which are also struggling globally, said Jain.

Investments have increased in the medical devices and healthtech space, which are likely to continue in the ongoing FY22 as well.

“Growth momentum is expected to continue with strong traction in areas such as network and allied infrastructure modernisation for 5G, telematics and software-defined network,” said Pande in a report.

Medical devices and healthcare has emerged as the fastest growing vertical amid the pandemic, led by demand in connected care, telehealth, digital product design, robotic surgical equipment and regulatory services on a low base.

Though transportation showed strong recovery, it is still not back to pre-pandemic levels, Pande said. Within this segment, there is strong pickup in automotive reflected by numerous large deals won by L&T Technology Services,

Ltd. and Tata Elxsi—they had won nine deals among them.

Globally, ER&D spending is growing and likely to reach $2.1 trillion by 2022 from $1.7 trillion in 2017, according to IT industry lobby group Nasscom. This, coupled with an increase in outsourcing deals, bodes well for Indian engineering services companies.

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