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With accelerated demand and liquidity in the markets, the valuations of global tech and Indian IT and ITeS companies have continued to surge and reach new highs
Efficient business operations are driven by an increase in IT spends in the post COVID-19 world. Grant Thornton Bharat’s Valuation Pulse report indicates that broad based demand of IT services across sectors, primarily in cloud led digital transformation, data analytics and Artificial Intelligence (AI) led to good sequential revenue growth and healthy deal wins. This is reflected in the continued outperformance of the Indian IT and ITeS industry compared to overall market indices. Within the Indian IT sector, the valuations of Small cap IT companies, mid cap IT companies and engineering services companies have seen the biggest upside in Q1.
“Strong growth in revenue were primary led by BFSI, Retail &Trade and Life sciences & Health-care vertical even though margins were slightly impacted by wage hikes and return of discretionary costs.
On the engineering services side, strong demand has been observed in areas of digital engineering, electric autonomous & connected vehicle (EACV), 5G and medical technology.” says Manish Saxena, Partner at Grant Thornton Bharat LLP.
On the transactions front [mergers and acquisitions (M&A) and funding], the sector witnessed a record transaction activity in Q1 FY 22 both in value and volume terms seen in last 3 years. Overall transaction values (M&A and PE) increased from USD 2,369 million in Q4 FY21 to USD 3,736 million in Q1 FY22 with volumes increasing from 32 to 40 transactions. On a y-o-y basis, transaction values (M&A and PE) increased from USD 420 million in Q1 FY 21 to USD 3,736 million in Q1 FY 22, with increase in volumes from 19 to 40 transactions.
“IT companies focused on acquiring technologies such as cyber security platforms and IT consultancy companies offering digital transformation, data and business analytics and business process management solutions. Further, funding by PE/VC saw good activity predominantly in the area of digital payments and analytics/AI,” added Saxena.