IT services firms may grow at 9-12% annual growth rate during FY18-21: Icra

Indian IT services companies are expected to grow at a compounded annual growth rate (CAGR) of 9-12 per cent between FY2018-21, impacted by lower deal sizes in digital technologies, cloud adoption and high competitive intensity, according to ratings agency ICRA.

The credit profile of Indian IT services companies remains stable, underpinned by the ability to sustain free cash flows despite pressure on revenue growth and margins, ICRA said in a statement.

"ICRA expects FY2018-2021 CAGR to be around 9-12 per cent for the Indian IT services companies compared to CAGR of 17.1 per cent experienced over the FY2013-2017 period," it said.

The ratings agency said it expects most large IT services companies to maintain high dividend pay outs and share buybacks as there are limited avenues for fund deployment.

"The growth of Indian IT services companies will be impacted by lower deal sizes in digital technologies, cloud adoption and high competitive intensity from local as well as international players," it added.

While companies have increased spending on digital technologies and awarding new contracts, the overall IT budgets have moderated leading to lower incremental spends, it pointed out.

Indian IT services companies are re-orienting their business models, focusing more on high-end services such as IT consulting and emerging technologies (digital) and have made considerable progress so far, though they currently lag international peers, it added.