India’s IT revenue per head climbs 6% in Q1FY25
NEW DELHI, INDIA — The Indian IT sector has reported a 6% year-on-year increase in revenue per head (RPH) for the first quarter of the financial year 2025, according to a report by HSBC Securities and Capital Market Research.
This metric, often seen as a proxy for pricing trends, reflects the sector’s performance and efficiency.
However, the report reveals that the rise in RPH is largely driven by higher utilization rates, pass-through revenues, and increased sub-contracting rather than genuine pricing improvements.
Revenue growth driven by utilization and sub-contracting
The report highlights that the increase in RPH is not necessarily indicative of improved pricing power.
Instead, it is attributed to factors such as enhanced internal efficiency measures and the execution of multi-year mega deal wins.
These elements have contributed to the apparent growth in revenue per employee, masking underlying pricing challenges.
Infosys and mid-tier firms show strong RPH growth
Infosys led the large-tier companies with a 9% increase in RPH. Mid-tier firms like Persistent Systems, KPIT, and Mphasis also reported significant growth. Persistent Systems achieved a notable 14% rise, while KPIT and Mphasis saw increases of 8-9%.
Despite these gains, the report cautions that when adjusted for utilization, the RPH increase is significantly lower—around 2-3% for Infosys and nearly flat for the sector overall.
Margin pressures challenge the IT sector’s profitability
The report underscores that the increase in RPH has come at the cost of margins. Persistent Systems, for instance, experienced a decline in EBIT margins to 14% in Q1FY25 from 14.5% in the previous quarter, despite the RPH growth driven by large deal wins.
“The increase in RPH is largely driven by internal efficiency measures, multi-year mega deal wins, and onsite-heavy projects with pass-through revenues,” noted Yogesh Aggarwal and Prateek Maheshwari of HSBC.
Strategic adjustments needed amid industry challenges
With operating metrics at or near peak levels and demand gradually improving, the report anticipates intensified margin pressures across companies.
To combat this, firms are expected to push for cost-of-living adjustment (COLA) increases, which could lead to better billing rates, particularly for on-site businesses. Additionally, the report suggests that the increasing penetration of generative AI in custom application development could be margin-accretive in the medium term.
