MOSL: Morning India (24/June/19): 1. Technology (The trend of gradually receding gross margins); 2. ITC (Annual Report)
MOrning India (24/June/19): 1. Technology (The trend of gradually receding gross margins); 2. ITC (Annual Report)
Today’s top research theme
Technology: The trend of gradually receding gross margins; Profitability a key near- term risk; Watch out for 1Q performance
- Gross margins for the IT Services industry have been trending down over the past five years, amid depreciating INR and increasing utilization rates. This has been led by a combination of realization pressure in traditional services, investments in Digital capabilities and he need for more localization amid the ever-tightening visa regime.
- The impact has been seen on both employee costs as well as sub-contractor costs as a percentage of revenues.
- In the foreseeable near term, but for currency’s support, we see continuum of this trend as supply remains tight, visas are hard to come by, attrition rates are rising and room for utilization is negligible.
- Commentaries / guidance across companies are for margins to sustain / decline. Two exceptions in our coverage universe that expect margin expansion are Cyient and Zensar.
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