Indian IT Services Industry has a stable outlook - ICRA
By MYBRANDBOOK
Expected CAGR for FY2018-2021e to be around 9-12% IT players compared to CAGR of 17.1% over FY2013-2017
ICRA has a stable outlook on Indian IT Services industry. The credit profile of Indian IT Services companies remains stable underpinned by its ability to sustain free cash flows despite pressure on revenue growth and margins. With aggregate operating margins of ICRA sample set at 22.5% for FY2018 coupled with moderate capex (organic as well as inorganic) and working capital requirements, the free cash flows have remained robust historically. Despite pressures on growth and margins over the medium term, these factors are unlikely to impact the free cash flow generation ability of Indian IT Services companies though there could be moderation in the quantum of such cash flows. The credit profile is also supported by net cash position with significant liquidity in the form of surplus investments generated out of past cash flows. Our sample set (13 leading Indian companies) reported surplus liquidity (net of debt) of approximately Rs. 1,600 billion March 2018 despite healthy dividend pay-out of approximately 30% (Rs. 206 billion) in addition to share buybacks (Rs. 73 billion).
ICRA expects most large IT services companies to maintain high dividend pay outs and share buybacks, as there are limited avenues for fund deployment. The investment requirements (organic and inorganic) for Indian IT Services in the past have been moderate relative to internal cash flow generation. Majority of the acquisitions done by Indian IT Services players have been to acquire competencies rather than achieve scale and size.
The growth of Indian IT Services companies will be impacted by lower deal sizes in digital technologies, cloud adoption and high competitive intensity from local as well as international players. While companies have increased spending on digital technologies and awarding new contracts, the overall IT budgets have moderated leading to lower incremental spends. Indian IT Services companies are re-orienting their business models focusing more on high end services such as IT consulting & emerging technologies (digital) and have made considerable progress so far, though it currently lags international peers. ICRA expects FY2018-2021e CAGR to be around 9-12% for the Indian IT Services companies compared to CAGR of 17.1% experienced over the FY2013-2017 period.
Margins will be supported by factors such as ability to modify cost structure with rational and variable salaries couples with gradual reduction of high cost resources. Besides deployment of operating levers such as higher share of fixed price contracts, lesser idle resources & automation benefits will also help manage costs. However, these factors will provide limited cushion leading to overall decline in operating margins from 22.1% in FY2018 to 20.8% in FY2021e for ICRA sample companies (13 leading companies).
BHIM to join e-commerce, competing with PhonePe and Google Pay
The government-supported payment software BHIM is getting ready to join t...
The latest version of X helps prevent deepfakes on social medi
To combat deepfakes and shallowfakes, Elon Musk revealed a new update t...
India and Namibia collaborate on a payment system similar to U
Once operational, the platform will enable digital transactions in Namibia,...
Sebi issues show-cause notices to six Adani group firms
Sebi issued show-cause notices to six Adani Group firms, including Adani ...
DELL TECHNOLOGIES INDIA PVT. LTD.
CENTRE FOR DEVELOPMENT OF TELEMATICS
SAMRIDDHI AUTOMATIONS PVT. LTD.
TEJAS NETWORKS INDIA PVT. LTD.
Technology Icons Of India 2023: Natarajan Chandrasekaran
Natarajan Chandrasekaran is the Chairman of the Board of Tata Sons, th...
Technology Icons Of India 2023: Girish Mathrubootham
Girsh Mathrubootham envisioned and co-founded Freshworks. Freshworks, ...
Technology Icons Of India 2023: Ashwini Vaishnaw
Ashwini Vaishnaw is an Indian politician and former IAS officer and is...
HPCL is transforming the energy landscape, across the nation and beyond
HPCL is world-class energy company known for caring and delighting the...
NIC bridging the digital divide and supporting government in eGovernance
The National Informatics Centre (NIC) is an Indian government departme...
BEL leveraging next generation technologies to keep the country ahead in Defence space
Bharat Electronics Limited (BEL) is a Navratna PSU under the Ministry ...
REDINGTON INDIA LIMITED
Redington (India) Limited operates in the IT product distribution busi...
INFLOW TECHNOLOGIES PVT. LTD.
Inflow Technologies is a niche player in the IT Infrastructure Distrib...
Crayon Software Experts India Pvt Ltd
Crayon helps its customers build the commercial and technical foundati...