Moody's upbeat on IT sector; sees annual revenue growth at 11-13 percent

The resilient Indian IT services sector’s revenue growth would stabilize at 11-13 percent annually, with the bottoming out of the slowdown over the past 18 months, said global credit rating agency Moody’s on Wednesday.  "We expect economic stability in developed countries, accounting for 90 percent of Indian software exports, to fuel growth for the global IT services outsourcing industry, benefiting Indian IT firms in particular," the agency said in a statement. The study report on IT services India: Market share gains despite headwinds also expects the industry to maintain its market share, with Ebitda (operating) margin at 21-22 percent. Asserting that currency volatility would pressure growth estimate, Moody’s said as IT export revenue was largely in US dollars and euro, the cost base would remain same as a result of conversion impact. “Though the Indian rupee has depreciated against US dollar since April 2011, the latter (greenback) is appreciating against other currencies, leading to volatility and conversion impact on growth estimates,” the agency pointed out. Cautioning the growing industry on competition from global peers and low-cost hubs putting pressure on revenues, the report claimed as a result of increasing outsourcing, multinationals had improved cost competitiveness by developing their presence in low-cost countries like India and Philippines. “As a fall-out of increasing competition from multinationals (MNCs), Indian IT firms are moving to low-cost destinations within and outside the country and are offering high-end value added services,” the report noted. The report also warned the industry that geo-political factors like curbs on outsourcing would impact its performance. Noting that Indian firms would embrace new technologies, the report said growth of digital technology and cloud computing services would offset eventual declines in traditional services through acquisitions and in-house developments. “As shift towards disruptive technologies like digital services, automation (artificial intelligence) and cloud computing will benefit large IT firms, we expect them to have edge over their peers by investing in skill development. Though cost pressures may lead to consolidation in the long-term, there will be no pressure on credit profiles of the IT firms over the next 12-18 months.