IT companies to post revenue growth of up to 9% in FY22 on demand for digital technologies: ICRA

15 Jan 2021 Evaluate

Rating agency ICRA in its latest report stated that demand for digital technologies and resumption of normal economic activities will drive sales for IT companies, and the sector will post a revenue growth of up to 9 per cent in 2021-22 (FY22). The agency gave a ‘stable' outlook for the sector, whose size is pegged at over $180 billion by industry lobby Nasscom, including the business process outsourcing business. It estimated that the IT services sector's revenues will rise between 7-9 per cent in rupee terms and between 5-8 per cent in dollar terms in 2021-22.

ICRA’s vice president Gaurav Jain said ‘Demand for IT services has been mildly impacted due to COVID-19 pandemic on all end-user industries though some sectors like travel/hospitality, retail, oil/gas have been impacted more severely’. Jain added that higher adoption of digital services has mitigated the impact to a large extent with companies ensuring that nearly 95 per cent of their staff transition to work-from-home. He added that the BFSI (banking financial services and insurance) vertical was initially impacted as modifications were required in confidentiality agreements with clients while the BPO vertical was impacted due to infrastructure constraints.

Jain said the pace of conversion of earlier deal wins into revenues picked up pace after some moderation during June quarter of this fiscal year, while the focus of new deals is now on cost take-outs, cloud transformation, virtualisation and digital customer experience. He noted that the pricing pressure mostly seen in legacy work during contract renegotiations too has been compensated by new digital transformation deals.

He said there will be little impact on growth and profitability for the companies, and added that margins will be in line with pre-COVID-19 levels, in 2021-22 for such companies. He also said the key risks for the companies in the sector continue to be increase in minimum wages, changes to eligible occupations, frequency and restrictions in issuance for H-1B visas. The rating agency said 82 per cent of the 52 companies it rates in the sector are in the investment grade category, indicating healthy cash flow generation led by higher margins and low working capital requirements.

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