IT Services: Volume traction to continue: Dolat Capital
Dolat Capital has come out with its report on Indian IT Services. The research firm has maintained positive stance on the sector with TCS, Infosys, Tech Mahindra and KPIT as preferred bets in the sector.
February 29, 2012 / 14:14 IST
Dolat Capital has come out with its report on Indian IT Services. The research firm has maintained positive stance on the sector with TCS, Infosys, Tech Mahindra and KPIT as preferred bets in the sector.
Gartner believe that the budgets has been normal across the geographies and IT spends would continue in the ensuing quarter ensuring high teen growth for Indian IT services companies. Eurozone crisis represents the largest factor for downward revision in IT Services forecast; however accelerated adoption of alternative delivery models like offshoring (penetration is just 4%) Current situation in Europe is similar to that of US in 2009 (post financial crisis), wherein lots of transformational and ITO deals emerged as part of cost saving efforts by companies through offshoring. Global delivery model would result in lower pricing and thus reduce the total contract value (TCV), cannibalizing revenue from traditional providers. Expects 4.4% CAGR over next 5 years for Global IT services (would reach size of USD 983bn by 2015) and believes that Indian players are all set to corner about 20-25% of the incremental market share, implying annual growth rate of 15-18%.Gartner expects BFSI to remain the largest outsourcing industry vertical in CY12. It expects sustained sluggishness in Telecom, Manufacturing and Retail. Expects regulatory driven opportunities in Healthcare/BFSI. Consulting & SI: Gartner has cut its growth to 3.4% from 3.8% for CY12 driven by subdued global economic outlook and signs of elongating sales cycle. Billing rate remain stable and movement to cloud and industrialized delivery will have longer term negative impact on demand for customization. BPO: Evolving trends include consolidation of vendors (CRM), slippage in deal size (F&A), and shift to alternative services like BPU; resulting in lower transaction deal size. Positive demand outlook likely in Healthcare administration and Analytics driven BPO. ITO: Forecast has been lowered to 2.9% growth in CY12 (earlier 4.1%). However; there are growing evidences of vendor churns on accounts of better ROI, innovation and compelling pricing through offshoring.In a nutshell, the research firm believes that the near term business scenario remains intact, but could be hit if the situation worsens in Europe. Some of the large global vendors such as HP, CSC and Capgemini are losing ground in the changed business needs scenario. This could create opportunities for Indian tier I vendors in the next round of vendor rationalisation. Indian IT services will continue to benefit from incremental market shares and win prepositions and will maintain its status as the first choice for outsourcing. Our estimates also builds in 14-18% volume growth for FY13 and improved profitability (led by better fx realizations and lower salary hikes), which we believe would ensure steady earnings growth for FY13. We maintain our positive stance on the sector with TCS, Infosys, Tech Mahindra and KPIT as our preferred bet in the sector.Shares held by Insurance Companies Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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