IT Sector Q1 Earnings Preview - Strong Revenue Growth Momentum May Continue: Anand Rathi

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Anand Rathi Report

Key trends and expectations -

• IT companies’ YoY revenue growth bottomed out in Q1 FY21; accelerating since then; momentum likely to continue.

• Cost-to-income ratios for direct and indirect costs – softened sharply but reversals have started in Q4 FY21 and may continue.

• With cost-to-income ratios hardening, Ebitda margins coming under pressure; we expect this to continue.

• The utilisation ratio has gone up in recent quarters. The possibility of a further rise looks limited. This can also impact employee productivity.

• The segmental distribution of revenue shows increase in contribution of banking financial services and insurance and fall for transportation in the last four years.

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