By Anindita Nayak
Bhubaneswar, 13 May:
Indian IT sector’s outlook for the current financial year seems conservative as compared to last fiscal year as large firms project to grow in low single-digits, while mid-tier IT firms guide for high single-digit growth rates in FY25.
In a report, brokerage firm Prabhudas Lilladher (PL) noted that the revenue growth projections for FY25 are discouraging.
“Unlike in FY24, companies have become more conservative in FY25 projections, and are baking in anticipated delays in executions and project closure activities. However, if the spending recovery coexists with an anticipated macro recovery in the near-term, then we might see an upward revision to the estimates for the companies as they progress through the year,” the brokerage firm said in its report.
According to the report, FY24 concluded with another quarter of lackluster performance in the IT services sector. Although revenue growth was in line with market expectations, there was a disappointment in margin improvement or earnings growth for certain companies.
“The ongoing volatility in key verticals such as BFSI, retail, and communications continues to impact the top-line performance, with most companies reporting either subdued or positive USD growth within BFSI, while retail growth showed weakness,” the report added.
The operating margin was flat QoQ (quarter-on-quarter) for the IT sector at 19.7%.
Despite weak top-line growth, margins for both tier-I and tier-II (excluding Persistent) companies remained high at approximately 20.1% and 15.4%, respectively. This was attributed to a decline in net headcount addition for the sixth consecutive quarter, particularly among tier-1 companies, along with reduced usage of subcontracting.
The deal TCV (total contract value) during the quarter was strong at $27 billion, up 33% on sequential basis. Median Book-to-Bill (BTB) remains elevated at 1.2x for the sector, however the revenue conversion remains a challenge.
The report noted that IT services providers are grappling with challenges such as weaknesses in discretionary spending, deferrals of transformation projects, and increased scrutiny, leading to delays in execution and constraints on hiring.
“Companies continued to prioritize spending on essential areas and focus on reducing costs across the board during the fourth quarter. However, some companies experienced significant project closures or cancellations due to uncertainties in the macroeconomic environment,” it noted.
