INDIAN IT SERVICES INDUSTRY FEBRUARY 2024 Revenue growth to remain tepid at 3-5% in FY2025
FinTech BizNews Service
Mumbai, March 4, 2024: In 9M FY2024, in USD terms, ICRA’s sample set companies in the IT services sector recorded a modest YoY growth of 2.0% in revenues, against 9.2% in FY2023.
ICRA expects revenue growth to remain tepid at 3-5% YoY in FY2024 and FY2025, owing to the persistent uncertainty in key markets, resulting in pauses and deferral of non-critical projects and slowdown in discretionary IT spends by key sectors like the BFSI, retail, technology and communication. However, the critical spending and cost optimisation deals continue to gain traction, supporting the growth prospects for IT companies. Although the revenue conversion of the orders has slowed down, the order book and deal pipeline of most IT services companies remains strong. Moreover, evolving consumer demand dynamics post the pandemic has made technology spend integral to the overall capital allocation of corporates Therefore, ICRA expects the growth momentum to pick up once the macroeconomic headwinds subside to an extent.
Despite expectations of muted topline growth, ICRA expects the operating profit margin (OPM) for the sample set to remain healthy at 21-22% in FY2024 and FY2025, supported by their ability to work with multiple levers such as onshore-offshore mix, utilisation levels, employee pyramid optimisation etc. to manage costs.
Inline with subdued demand prospects, hiring activity in the industry has remained muted over the
past five quarters, with negative net addition for the sample set companies because of moderation in
demand coupled with the increase in utilisation of excess capacity added in FY2023. ICRA expects it to
remain muted in the near term with gradual pick-up until the growth momentum improves.
Impact of inflationary headwinds in key markets on the IT services industry has been broad-based across all key sectors. However, the BFSI (contributes 40% to the revenues of the industry) and telecom (contributes 12-13% to the revenues of the industry) segments have contracted more than the other segments.
The last twelve-month (LTM) attrition for ICRA’s sample set companies witnessed a steady decline over the
last five quarters, inching close to the long-term average. ICRA expects attrition levels to stabilise over the near term, as overall slowdown in growth momentum and strong hiring in the previous fiscal has corrected the demand-supply mismatch witnessed
earlier.
