ITES could earn high margins: Study

By siliconindia   |   Thursday, 06 February 2003, 20:30 IST
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MUMBAI: Information technology-enabled services could bring rich rewards to well-managed firms, possibly earning net margins above 20% over a period of time, according to a study by CRISIL, a leading industry and company research organization. IT-enabled services are delivered over telecommunications networks or the Internet, such as call centers providing customer support. "The common view is that since it is a low value-added service, it is a low- margin business. On the contrary, ITES companies can earn EBIDTA margins of around 28% and net margins of over 20% over a period of time," said the study by Cris Infac, a unit of local rating agency Crisil. But it struck a cautionary note, saying the nature of the business means returns don't come immediately. "Since the sales cycle in ITES deals are typically between 6-12 months and companies need to invest ahead of the demand curve, resulting in low utilization rates initially, most companies take 4-6 quarters to break even," said the study. Some of India's biggest software services firms have entered the fast-growing IT-enabled services sector, and analysts expect this area to eventually contribute a large portion of their revenues.