Indian software exporters generally run the entire back-end IT operations of maintenance and support for these traditional retail brands and undertake digitisation programmes to cut costs.
Among large-caps, Wipro has the highest exposure to retail vertical (16.3 per cent of FY20 revenue), followed by Infosys (15.4 per cent) and Tata Consultancy Services (TCS) at 15.1 per cent. Among mid-caps, Mindtree leads at 20.3 per cent.
According to the US and Canadian bankruptcy
court filings reviewed by Business Standard, JC Penney ($6.7 million), Neiman Marcus ($1.6 million), and Aldo Group (0.4 million) owe $8.7 million (or around Rs 65.5 crore) to TCS.
was one of the 50 largest creditors listed, with unsecured claims for retailers that filed voluntary bankruptcies in the US.
The Tata group firm did not respond to an email seeking comments.
"In short, the chances of foreign firms recovering full dues in a Chapter 11 bankruptcy
are slim. However, the US enacted Chapter 15 of the Bankruptcy
Code as part of the 2005 Bankruptcy Abuse and Consumer Protection Act," said Salman Waris, partner head of intellectual property and technology, media and telecom at TechLegis Advocates & Solicitors.
Chapter 15 governs how a US court should treat a foreign insolvency proceeding when no plenary proceedings have been commenced in the country. It provides a mechanism for cooperation between the US court and a foreign court overseeing a debtor's plenary insolvency proceeding, he added.
It is to be noted that JC Penney and Neiman Marcus have filed for Chapter 11 bankruptcy, while Canada-based Aldo Group has filed a Chapter 15 bankruptcy in the US. Also, there are no laws in India to cover cross-border insolvency in general, said Waris.
But the Ministry of Corporate Affairs has appointed a panel headed by IPS K P Krishnan to look into enterprise-group insolvency on a cross-border basis. The panel has been given three months’ time to submit its recommendations.
In 2020 so far, as many as 13 retailers - with over 3,800 stores - have already filed for bankruptcy in the US.
Apart from the ones mentioned above, other major brands include J Crew, True Religion, Stage Stores and Pier 1 Imports.
The UK-based departmental store chain Debenhams and high-street chains Oasis and Warehouse, too, have fallen into administration since the Covid-19 outbreak. Core Insights, a retail research and consultancy firm, estimates closure of around 15,000 stores in the US, in this year alone.
"Commentary from IT companies also suggests that while the deal pipeline is strong, the (cash) conversion rate has slowed down," said Apurva Prasad, research analyst (IT) at HDFC
Securities. "But most IT companies have strong balance sheet and cash flow generation to manage the near-term impact on working capital from select verticals."
"Retail segment has been hit hard, especially in non-grocery, apparel, lifestyle and fashion, and logistics," said Pravin Rao, chief financial officer, Infosys during the earnings call last month. The company expects "significant pressure" on spends for the segment, despite a healthy level of deal wins, he added.