Indian IT sector revenue growth to slow to 8-10% in FY2024-25, says Fitch Ratings

In FY23, the domestic IT companies reported a revenue growth 16.5 per cent and Indian IT sector revenue growth to slow to 8-10% in FY2024-25, says Fitch Ratings.

Revenue growth of the Indian IT sector is likely to slow to 8-10 per cent in the current and the next fiscal on weaker economic conditions in the two largest markets – the US and Europe, says Fitch Ratings.

In FY23, the domestic IT companies reported a revenue growth 16.5 per cent.

“The Indian IT services sector’s annual revenue growth is likely to slow to 8-10 per cent in FY24-FY25 (financial years ending March), on a constant currency basis, from the FY23 average of 16.5 per cent as global IT spending will shrink on slower economic growth in the US and Europe,” the rating agency said in a report.

Infosys Ltd, in the Q1 FY24 results, lowered its guidance on revenue growth to 1-3.5 per cent for FY24 from an earlier guidance of 4-7 per cent.

In its global economic outlook published in June this year, Fitch had forecast US real GDP growth to slow to 1.2 per cent and 0.5 per cent in 2023 and 2024, respectively, from 2.1 per cent in 2022.
Eurozone GDP growth is likely to decelerate to 0.8 per cent and 1.4 per cent in 2023 and 2024, respectively, from 2022’s 3.5 per cent.

The agency expects a mild recession in the US in the fourth quarter of 2023 and the first quarter of 2024.
Revenue growth in the IT industry is driven by global economic growth and clients’ willingness to increase investments on technological infrastructure and digital initiatives. IT services are generally highly cash-generative businesses.

Fitch said the FY24 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins of Indian IT services companies to be stable year-on-year and remain somewhat below historical averages, as easing cost pressures are offset by a weakening demand environment. It expects larger Indian IT services companies to continue to have high rating headroom due to their strong net cash positions and strong FCF (free cash flow) generation.

The agency said its rated major Indian IT services companies are likely to continue to generate pre-dividend FCF margins of 12-17 per cent on stable EBITDA profitability and low working-capital and capex requirements. “We expect Tata Consultancy Services Ltd (A/Stable), Wipro Ltd (A-/Stable), HCL Technologies Ltd (A-/Stable) to return 40-90 per cent of their pre-dividend FCF to shareholders via dividends and share buybacks,” it said

With Thanks Reference to: https://indianexpress.com/article/business/indian-it-sector-revenue-growth-to-slow-to-8-10-in-fy2024-25-says-fitch-ratings-8892832/