Revenue growth of IT firms in FY24 to be 7-9% lower than FY23: CRISIL

Amid global macroeconomic and financial sector headwinds, the information technology (IT) companies in India will see a 7-9 per cent fall in revenue growth next year, compared with this year, CRISIL said on Friday.

In a release, the rating agency said that in 2022-23 (FY23), the IT services sector will see revenue growth of 18-20 per cent. In FY24, this is expected to fall to 10-12 per cent. In FY22, this was around 19 per cent.

The findings were based on the study of the top 17 firms, which accounted for nearly 71 per cent of the sector’s revenue last year.

The key reason for the sharp fall in revenues is the slowdown in the banking, financial services and insurance (BFSI) segment. It accounts for 30 per cent of the sector’s revenues.

“Headwinds in key markets, especially the BFSI segment in the US and Europe, will affect the revenue growth of domestic IT services companies. While BFSI segment revenue growth is expected to halve to mid-single digit, it would be marginally offset by 12-14 per cent growth in the manufacturing segment and 9-11 per cent growth in other segments. Net-net, there would be moderation in overall revenue growth,” said Anuj Sethi, senior director, CRISIL Ratings.

This year, these companies are expected to see a moderation of 1.5-1.75 per cent in the operating profitability to a decadal low of 22-22.5 per cent. This has been attributed to high employee costs as they form close to 70 per cent of the total cost.

However, in FY24, these costs are expected to moderate as companies are now more cautious on hiring. Attrition is expected to moderate further, the agency said.

“The full impact of the extraordinary hiring of FY22 was felt in FY23, because of which employee cost is estimated to rise by over 20 per cent. Companies are now focussing on utilisation than advance hiring, supported by lower attrition. This should lead to marginal improvement in operating profitability in FY24,” says Aditya Jhaver, director, CRISIL.

“Larger companies with an agile and large spectrum of capabilities will be able to cater better to the changing needs of clients and, hence, will be insulated from pricing pressure,” Jhaver adds.
Due to continued healthy cash generation, strong balance sheets and sizable cash surpluses, Crisil said the credit quality of the sector is expected to remain “stable”.