Thought Leadership

Valuation Pulse - IT and ITeS industry

We are pleased to present the Valuation Pulse for the fourth quarter of FY19.

On a full year basis, fiscal year ending March 2019 saw most of the IT companies demonstrating a healthy growth and improved margins compared to FY18 on the back of improved global growth, rupee depreciation, and increasing share of digital services. However, in the most recent quarter, i.e. Q4 of FY19, most of the IT companies witnessed sluggish growth, margin erosion due to increased localisation, attrition, etc., and muted forecast due to macroeconomic headwinds and concerns in the BFSI segment. This led to some softening in the valuation multiples of the IT companies, with most of the companies trading at or below their long-term average valuation multiples. Engineering services companies also witnessed a decline in valuation multiples in Q4 due to a demand pushout in the aerospace vertical.

On the deals front, in FY19, IT companies continued their quest for acquiring digital capabilities through acquisitions. Tech Mahindra led the pack with the most number of acquisition in FY19, while HCL led in value terms. The SaaS, software solutions, predictive analytics and digital payments segments witnessed the most transaction activity in the last 12 months in volume terms. Further, FY19 saw some marquee transactions, including HCL’s acquisition of IBM’s software products, which is the largest acquisition by an Indian IT company till date.

We hope you will find this publication insightful and informative.