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Digital services pie to double in IT exports to 30% by 2020

twitter-logo PTI        Last Updated: January 29, 2018  | 16:27 IST

Mumbai, Jan 29 (PTI) The share of digital services in the software exports is expected to double to about 30 per cent by fiscal 2020, as the segment is clipping at 30-35 per cent annually, says report.

The overall IT revenue is expected to grow at 8 per cent per annum until fiscal 2020, driven largely by digital services, ratings agency Crisil said in a report today.

"This will be supported by re-skilling of employees and increased mergers and acquisitions (M&As) by the IT players, seeking to enhance the digital pie in revenues which is expected to double to 30 per cent by then,"the report said.

On the other hand, the share of traditional IT services, which account for the bulk of the USD 150 billion a year domestic software industry, will decline given the flaccid 2-4 per cent annual growth currently, it said.

Revenue growth slowed to below 10 per cent between fiscals 2015 and 2017, from a very strong 27 per cent compounded annual growth rate seen in the two decades through fiscal 2014.

"With bulk of the revenue coming from exports of services, lower IT spend by major global clients and a shift in demand towards digital services have led to the decline," the report elaborated.

The share of digital services revenue in the countrys software exports is low at about 15 per cent now, given the late entry by domestic firms. But this business grew more than 25 per cent in fiscal 2017 as domestic firms won digital deals, backed by reskilling of their employees. This trend is set to accelerate, the report notes.

"The share of digital services in new global outsourcing contracts is estimated to have doubled to about 40 per cent in fiscal 2017 from three years back, and will drive revenue growth going forward," said Anuj Sethi, a senior director at Crisil.

"For major global IT players, more than a third of revenue already comes from digital services," he added.

Further, M&As in the domestic digital space surged to 64 in fiscal 2017 from 39 in 2014. One in every three IT acquisitions was in the digital space, as per Nasscom.

"We foresee an increase in moderate-sized acquisitions in the digital space by both large and small firms to expand digital offerings and build scale," Rajeswari Karthigeyan, an associate director at Crisil said.

For smaller firms, acquisition activity will also be driven by the need to diversify existing offerings, an area of strength for larger firms already.

Crisil rates over 70 IT firms. Slowing growth of traditional IT services, exchange rate volatility, and rising employee costs are exacerbating profitability pressures in the sector, it said. PTI DSK BEN BEN

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