Transition to non-voice to boost ITeS players' margins: Crisil SME Tracker

SMEs have been gradually adopting robotic process automation technologies such as chatbots, to transition from pure voice services to non-voice-based ones

Owing to fierce competition from the Philippines market and the pandemic-induced volume contraction, voice-focused players in the customer relationship management (CRM) segment of the IT enabled services (ITeS) sector will likely be at a disadvantage in the current fiscal year (FY21).

Small and medium enterprises (SMEs), accounting for about 70 per cent of ITeS sector revenues and having major exposure to CRM, are expected to be the worst-hit.

Last fiscal, the ITeS sector, including its three key segments of CRM, knowledge and transactions, grossed Rs 2.6 trillion in revenues. Exports accounted for 88 per cent, with CRM accounting for 39 per cent. The domestic-focused industry was far smaller, accounting for 12 per cent of revenue, but here CRM contributed 80 per cent.

In FY21, with the voice segment contracting, revenue growth of SME ITeS players is expected to fall 3-4 per cent year-on-year. But margins will increase due to a fall in travel and facility expenses.

In the next fiscal year (FY22) volumes are expected to bounce back, with SMEs gradually adopting robotic process automation technologies such as chatbots, to transition from pure voice services to non-voice-based ones.

Government-backed projects such as Digital India are expected to aid prospects of 6-7 per cent revenue growth. Margins will likely increase, too, with demand revival leading to a pick-up in volumes and billing rates.

SMEs transitioning to non-voice services will fare better, as this helps save on costs and improves productivity, easing pressure on margins.