See $ rev of IT services growing at 13-15% in FY16: Crisil

India's IT services exports, which stood at around USD 50.5 billion in 2013-14, is estimated to grow at 12-14 percent y-o-y in 2014-15, says Crisil report. In the first nine months of 2014-15, tier-I companies have reported dollar revenue growth of 11.8 percent y-o-y, due to cost pressures on clients, resulting in cautious IT spending and slower growth from verticals such as insurance, retail, and energy and utilities, the rating agency says.

At the moment, growth is being driven only by volumes as billing rates are expected to remain more or less stable. Stringent regulatory and compliance requirements and geographical expansion by IT players will support growth, it adds.

Crisil expects dollar revenues of IT services to grow at 13-15% in 2015-16 on the back of improvement in macroeconomic environment in developed economies, especially the US, which accounts for nearly 60 percent of the market for Indian IT vendors. In rupee terms, the domestic IT services market – which at around Rs 730 billion in 2013-14 – is expected to grow 9-11 percent in 2014-15 as the NDA government’s focus on IT initiatives such as the ‘Digital India’ programme has not yet resulted in incremental revenues for domestic IT players.

"We expect spending from the government (largest contributor to revenue) to pick up in 2015-16, which will help the industry grow at a faster pace of 11-13% in rupee terms," according to the report.

Crisil Research expects the ITeS industry’s export revenues to grow by 8-10 percent y-o-y in 2014-15 as larger and complex deals led to decision making delays and continued competition in the voice-based CRM segment from countries such as Phillipines.

CRISIL Research expects margins to come under pressure in 2014-15 as billing rates are expected to remain flat and rupee is also anticipated to remain relatively stable vis-à-vis the dollar on a y-o-y average basis, coupled with wage hikes of 8-10 percent and increased onsite hiring. "Overall, we project a 0-50 bps contraction in EBITDA margins in 2014-15 for IT services players and 150-200 bps decline for ITeS players," it adds.

Increasing focus on non-linear services and automation, along with inability to increase billing rates, will impact hiring by IT services companies, the research report says.