Accelerated digitisation augurs well for the IT services industry says: ICRA

Growth momentum for the industry is likely to sustain over the near term, this has been supported by uptick in all key verticals such as BFSI, telecom, manufacturing, retail and distribution. Domestic IT services companies are having a good run and their revenue growth is expected to be around 9-12% in FY2022, driven by accelerated and robust demand for digital technologies from enterprises globally; and partly on a low base of last year due to Covid-19 impact. Industry growth though, is expected to moderate marginally to 6-9% in FY2023 partly also on account of the base effect.

Carrying forward the momentum from recent quarters, ICRA’s sample of 13 IT companies recorded revenue growth of 17.6% in INR terms and 17.3% in US$ terms in Q2 FY2022.The INR appreciated by ~1.0% vis a vis Euro on a Y-o-Y basis which moderated INR growth to some extent during the quarter. However, with normalization in operational overheads as work-from-office has resumed partially and some pricing pressure on commoditised services, operating margins have seen some moderation in H1 FY2022. Notwithstanding the same, margins are expected to remain healthy between 22-24% over the medium term.

spokesperson of ICRA says, “In line with the growth trajectory witnessed over recent quarters, Indian IT services companies are expected to report healthy growth over the near term due to favorable factors. This growth has been supported by uptick in all key verticals such as BFSI, telecom, manufacturing, retail and distribution. However, concerns have emanated from elevated attrition levels for the industry due to strong demand for digital technologies and lack of adequate skilled manpower to service the same.

Companies are reskilling employees to overcome this challenge. Moreover, they have also been able to achieve higher employee productivity through increased deployment of technology. Hiring by IT companies is at an all-time high buoyed by strong demand and net addition over the past four quarters has been increasing exponentially.” Moreover, IT services companies remain focused on enhancing the share of fixed price contracts as it assures better revenue visibility and also allows for higher deployment of offshore resources where the salaries are 60-70% lower coupled with better utilization of manpower across such projects and deployment of automation.

S Mohini Ratna, Editor, VARINDIA