Indian IT industry to stage ‘strong recovery’ with 11% revenue growth in 2021-22: Crisil
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Ratings agency Crisil has said that the Indian IT industry will stage a ‘strong recovery’ in 2021-22 with a revenue growth of up to 11 per cent. It noted that the recovery will be led by increasing outsourcing and accelerating digital transformation services mainly in sectors such as banking, financial services and insurance (BFSI), healthcare, retail and manufacturing. Crisil said higher business levels, and more profitable digital deals (45 per cent share in revenues in FY21 versus 40 per cent in FY20) will also help IT services players maintain healthy operating margins.
The agency said the revenue growth in 2021-22 will be almost 4 percentage points more than the growth of 6 per cent in last fiscal year and similar to the 10 per cent growth logged over fiscals 2018-2020. BFSI, which accounts for 28 per cent of IT service revenue, will clock 13-14 per cent growth in this fiscal year, up from FY21's 9 per cent rise due to rising share of digital transactions, continued regulatory compliance and data security. Retail and manufacturing, which together account for 30 per cent of revenues, are expected to recover 8-9 per cent after slowing down to 2-3 per cent last fiscal year. Healthcare, though a small segment accounting for only 6 per cent of revenues, will sustain its high growth at 15-16 per cent, benefitting from higher spending on tackling COVID-19 and increasing adoption of virtual services.
Despite stronger revenue growth, profitability is unlikely to rise beyond the levels witnessed in 2020-21, it said, adding that operating margins expanded 2 percentage points to a seven-year high of 25 per cent in the last fiscal year mainly due to cost savings from lower travel, favourable onshore-offshore mix (due to lower onsite roles following the pandemic), and lower attrition levels. With the expansionary recruitment phase, including maintenance of higher bench strength, employee costs, which account for 67 per cent of revenues, are expected to rise. The agency expects continued improvement in the credit quality of most IT firms, given their lowly leveraged balance sheets and robust liquidity. Recurrence of additional waves of the pandemic in the US and Europe, which are key destinations for IT services, would be the factors to monitor.
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