Indian IT industry to post strong recovery with 11% revenue growth in FY22: Crisil

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The Indian IT industry will stage a “strong recovery” in 2021-22 with revenue growth of up to 11%, rating agency Crisil said on Wednesday. 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, it said.

As per Nasscom, the IT services industry grew 2.7% to $99 billion in 2020-21. The wider industry including e-commerce, business process management, and global back-offices had grown 2.3% to $194 billion in the last fiscal year, as per the industry lobby.

Industry stalwart Azim Premji, the founder chairman of Wipro, also expected a double-digit growth on Tuesday.

Crisil said higher business levels and more profitable digital deals (45% share in revenues in FY21 versus 40% in FY20) will also help IT services players maintain healthy operating margins.

“With customers focussing on optimising 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,” Crisil’s senior director Anuj Sethi said.

He added that deal wins by Indian players have expanded by 20% year-on-year in 2020-21, with 80% of them being digital deals across verticals.

The revenue growth in 2021-22 will be almost 4 percentage points more than the growth of 6% in the last fiscal year and similar to the 10% growth logged over fiscals 2018-2020, the agency said.

BFSI, which accounts for 28% of IT service revenue, will clock 13-14% growth in this fiscal year, up from FY21’s 9% rise due to a rising share of digital transactions, continued regulatory compliance, and data security, it said.

Retail and manufacturing, which together account for 30% of revenues, are expected to recover 8-9% after slowing down to 2-3% last fiscal year, it said.

Healthcare, though a small segment accounting for only 6% of revenues, will sustain its high growth at 15-16%, 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% 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.

“This fiscal, with the gradual normalisation of businesses across the globe, a partial reversal of the cost savings logged last fiscal is likely,” Rajeswari Karthigeyan, associate director, said.

With the expansionary recruitment phase, including maintenance of higher bench strength, employee costs, which account for 67% 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, it said.