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ICICI Securities Report
We have analysed the just-concluded quarter results of global SaaS companies with whom Indian IT companies have sell-to and sell-with partnerships (Servicenow, Atlassian, Snowflake, Salesforce, Workday, etc.) and digital engineering companies (EPAM, Globant, Endava), which can be considered proxy for high-end digital services demand.
Our key takeaways from this analysis are:
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Software-as-a-service and digital companies guided for lower revenue growth in FY24/CY23 versus FY23/CY22 at the start of the year. But the guidance has not further deteriorated despite the banking crisis in March 2023. On the contrary, Servicenow, Salesforce, Intuit, Workday and Atlassian have either retained or slightly upgraded their fullyear (FY24/CY23) guidance.
SaaS and digital companies have guided for weak growth in the June 2023 quarter, but expect demand to revive in H2 FY24/H2 CY23 as full-year guidance for most companies implies relatively higher compound quarterly growth rate in second half versus first half of the year.
Deal pipelines are healthy and growing despite higher scrutiny and lengthening of the sales cycle. Therefore, SaaS and digital companies believe digital transformation demand is sustainable.
Clients are focusing on cost optimisation and reduction of total cost of ownership (can be achieved by consolidating SaaS platforms). This would likely be a net positive for Indian IT services providers, as many of them have built integration capabilities around the large SaaS vendors who are likely to benefit from consolidation.
Financial services growth was largely resilient for most SaaS companies; but sub-segments exposed to regional banks exhibited softness.
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