The USD 100 billion IT services sector will stage a strong recovery this fiscal, with revenue growth of 10-11%, according to ratings agency Crisil.
The recovery will be led by increasing outsourcing and accelerating digital transformation services mainly in sectors such as BFSI, healthcare, retail and manufacturing, it said.
Much of the growth will be from new deals for digital transformation projects, according to analysts. While margins would be impacted to some extent due to wage hikes and increased hiring, this would be partially offset by a reduction in travel and other costs.
This along with already healthy balance sheets will in turn lend a positive bias to the credit profiles of IT service providers. A Crisil Ratings analysis of 18 firms which account for 70 per cent of the IT service sector’s revenue indicates as much.
IT industry body Nasscom had earlier said the sector continues to be a net hirer of skilled talent, and that the top 5 Indian IT companies are planning to add over 96,000 employees in 2021-22.
Anuj Sethi, Senior Director, CRISIL Ratings, “With customers focusing on optimizing costs, outsourcing of IT services is seeing a steady rise globally.
The pandemic has opened up additional opportunities in digital services due to surge in remote working, e-commerce and automated services. Hence, deal wins by Indian players have expanded by 20% on-year in fiscal 2021, with 80% of these being digital deals across verticals.”
The revenue growth in fiscal 2022 will be almost 400 basis points more than the growth of 6% last fiscal and similar to 10% growth logged over fiscals 2018-2020. Revenue growth across business verticals will vary.
Indian IT services companies, including Wipro and Infosys, are ramping up their large deal teams to remain competitive and keep an eye out for big and long-term contracts over the next few years.
Last fiscal, some of the country’s IT services companies had bagged a significantly higher number of big-ticket deals, making it one of the best years in recent times in terms of large deal wins.
Infosys reported large deal bookings worth more than $14 billion–much higher than in FY20. It is also focusing on an overall expansion of talent across large deals, other sales and client-facing segments.
“We are continuously looking at better ways to connect with our clients. In that light, every quarter, and every year we make refinements to how we approach the market. That is part of the ongoing way that our business is evolving, especially on large deals and many other areas of the company…,” Infosys CEO Salil Parekh had said during the announcement of the company’s Q4 results.
“There is a good outlook in terms of what we see in the demand. So, there is an overall expansion that we are looking at how we build our go to market capabilities, whether it is for large deals, overall CSG and sales, new account openings or the account expansion approach. So overall we feel there are more ways that we will have to connect with clients,” he said.
Wipro also reported $1.4 billion worth of large deal during the quarter to March 2021.
The majority of large IT services companies have strengthened their deal teams, given the increase in the number of deals in the market, Peter Bendor-Samuel, chief executive officer of Everest Group, IT advisory and research firm said adding that the number of large deals is growing and we expect this trend to continue for some time.
These companies have seen a steady increase in large deals for several years and the Covid-19 pandemic has accelerated this trend in their key markets, such as the US and Europe.