Topics In Demand
Notification
New

No notification found.

ROAD TO DOUBLE DIGIT ANNUAL GROWTH – Indian Technology Sector Performance for June 2021 Quarter
ROAD TO DOUBLE DIGIT ANNUAL GROWTH – Indian Technology Sector Performance for June 2021 Quarter

August 31, 2021

130

0

Q1FY22 Performance Analysis of Select Indian Publicly Listed Technology Services Companies

Revenues remain upbeat, while margins slip slightly

The first quarter results of FY22 demonstrated a promising demand scenario for the Indian Technology Sector, while the COVID-19 second wave had a limited, short-term impact on the Indian market. Though uncertainty around the virus continues to loom, growth estimations for the Global economy, specifically the developed markets are positive, coupled with the increasing thrust on digital- continues to support a robust demand environment for the sector. This is also highlighted in the optimistic outlook companies have projected for FY22, with most revising their guidance upwards this quarter.

The sequential growth trend witnessed during the quarter is expected to continue in Q2FY22, as strong deal pipeline supports optimistic growth expectations, affirming the confidence of double-digit growth for FY22. Managing attrition with increased hiring and reskilling will be a key factor for margin management.

Expectations of recovery in Global economic growth and technology spending continues….

  1. Global Economy - Global GDP is expected to increase by 6% in 2021 (unchanged from April 2021 estimates) as prospects for emerging market and developing economies have been marked down especially for Emerging Asia, however it has been revised up for advanced economies. These revisions are reflective of the pandemic impact and changes in policy support across these regions. Though uncertainty around the pandemic remains, the growth momentum is expected to continue in 2022 with the global GDP growth of 4.3%.
  2. Indian Economy - India’s GDP was estimated to grow at 9.5% in 2021 as per IMF’s estimates released in July 2021, a downward revision of 300 bps from April 2021 driven by the adverse impact of the 2nd wave of COVID-19. However, a rebound is projected in 2022 with the economy expected to grow at 8.5% (upward revision of 150 bps from the April 2021 estimates).
  3. Global Technology Spending - According to Gartner Inc’s projections (as of July 2021), global technology spend1[1] growth is expected to witness a y-o-y growth of 11% in 2021, a significant improvement compared with their previous projections of growth at 9.5% (as of April 2021). The growth is primarily driven by increase in IT services spending which in turn is getting a boost from demand in infrastructure-as-a-service spending.

 

….Driving the demand growth momentum for Indian IT companies…

  1. According to ISG, Global ACVs surpassed the last quarter’s all-time high (US$17.1 billion) setting a record by reaching US$19.1 billion during the quarter registering a growth of 31.7% y-o-y.
  • Managed services’ ACV - This key operating space for Indian IT companies registered a growth of 23.4% y-o-y, maintaining a total ACV of more than US$7 billion consecutively for the third quarter, at US$7.9 billion. ADM (Application Development and Management Services) activity was up 30% in 1H22 compared to both 1H20 and 1H19.
  • As-a Service ACV - Increased 38.3% y-o-y to US$11.2 billion again at an all-time high surpassing the previous quarter’s high of US$9.9 billion, with y-o-y growth more than doubling compared to the previous quarter. 
  1. Deal pipeline remains upbeat across the Indian technology sector
  • Strong Deal Pipeline - During Q1FY22 the companies announced a deal pipeline of over US$15 billion, signaling the continuation of a positive demand momentum for the industry.

 

…Reflected in the revenue growth that marks the start of a strong year ahead……

  1. Revenues grew 4.3% q-o-q, and 19.5% y-o-y with digital being the key driver.
  • Digital Revenues2[2] - Increased with the share of digital (of select companies) increased to 54.4% of total revenues during the quarter.
  • Geographic Markets – Growth in revenues across all the major markets continued sequentially as well as y-o-y. Both North America and Europe maintained a healthy growth trajectory. Revenues from India were down sequentially primarily due to the impact of the 2nd Covid-19 wave.
  • Verticals – All sectors continued to witness growth sequentially as well as y-o-y with BFSI maintaining its lead. All sub-sectors across emerging verticals3[3]grew sequentially and annually, including Travel & Hospitality which also reported a recovery on a y-o-y basis, during the quarter.
  1. Net margins declined sequentially primarily driven by salary hikes; rising attrition which is fueling subcontracting and retention costs; returning travel and facility costs. Notably, y-o-y margins continued to remain high as some of the cost optimization levers such as travel and facility management are still below the pre-covid levels.  
  2. Net client addition continued to remain positive as most companies witnessed new additions during the quarter.

 

….Which continues to ride on the “Double-digit growth theme”…

  1. Most companies remain optimistic about the growth scenario and continued to project double-digit growth guidance for FY22. The optimism has increased this quarter- supported by the fact that most companies have revised their guidance upwards from last quarter. The growth trend witnessed this quarter is expected to continue in next quarter as demand outlook for the industry remains positive which continues to support a robust deal pipeline.

 

….. Even as talent remains a key challenge which companies are addressing in different ways

  1. Employee count increased as hiring remained the key strategy to meet the increasing talent requirements amidst rising attrition. Consequently, as the demand environment remains robust, companies are planning to hire more in the next few months of 2021. Firms continued to witness an uptrend in utilization levels which are trending at record high levels.
  • Attrition continued to increase driven by rising demand for new-age skills as demand for digital increases across industries. Companies in turn are trying to counter this trend through increased hiring and focusing on reskilling.

 

For more details on companies covered and operational matrices read the latest edition on NASSCOM’s Quarterly Industry Review – August 2021

 

 

1 Gartner Estimates includes IT services and enterprise software revenues in reported currency terms

2 Includes companies which are reporting their digital revenues at least for the last one year

3 Emerging vertical includes Healthcare, Retail, Energy & Utilities, Travel & Hospitality, Govt., Public Sector & Education, Infrastructure and Others


That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.


images
Neha Jain
Senior Analyst

Neha Jain

© Copyright nasscom. All Rights Reserved.