Indian IT sector sees a 6% revenue per head rise, but faces intense margin pressure amid peak operating metrics.

The Indian IT sector saw a 6 percent year-on-year increase in revenue per head in the first quarter of financial year 2025, driven mainly by higher efficiency and subcontracting, rather than pricing improvements. Infosys led large companies with a 9 percent rise, while mid-tier firms like Persistent Systems and KPIT reported even stronger growth. However, when adjusted for utilization, the true increase in revenue per head is much lower, around 2-3 percent for Infosys. Despite this positive trend, margins are under pressure, and companies may need to increase pricing to maintain profitability, especially as demand improves and costs rise. The integration of GenAI technology is expected to positively impact margins in the long term.

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The Indian IT sector experienced a 6 percent year-on-year increase in revenue per head (RPH) during the first quarter of financial year 2025 (Q1FY25), according to a report by HSBC Securities and Capital Market research. Despite this growth seeming positive, a deeper look indicates that the rise in RPH is mostly due to higher utilization rates, increased pass-through revenues, and sub-contracting ratios, rather than genuine price increases.

Among the major players, Infosys achieved the highest growth in RPH at 9 percent. Meanwhile, mid-tier companies such as Persistent Systems reported impressive figures, showing a 14 percent increase, while KPIT and Mphasis recorded growth of 8-9 percent. However, when adjusting for utilization, the actual increase in RPH drops to about 2-3 percent for Infosys, with the overall sector seeing minimal change. This trend highlights that the rise in RPH is largely attributable to efficiency improvements and winning large multi-year contracts rather than elevated pricing strategies.

The report also emphasized the impact of these changes on profit margins. For example, Persistent Systems saw a rise in RPH due to its success in winning large deals, but this came at the expense of its EBIT margins, which fell to 14 percent from 14.5 percent in the previous quarter.

With current operating metrics at peak levels and demand starting to improve, the report suggests that companies will need to concentrate on enhancing pricing to maintain profitability. As pressure on margins intensifies, organizations may push for cost-of-living adjustments (COLA) that could lead to better billing rates, especially for onsite projects. The integration of Generative AI in custom application development is considered a promising avenue for future margin improvement, pointing toward medium-term growth in this area.

In conclusion, the Indian IT sector is at a crucial juncture where, while growth in revenue per head is encouraging, the need for strategic pricing and efficiency adjustments will be vital to sustain profitability.

Tags: Indian IT sector, revenue per head, Infosys, HSBC report, profit margins, Generative AI, financial growth 2025

What does the report say about IT revenue per head for the June quarter of FY25?
The report says that IT revenue per head increased by 6% in the June quarter of FY25.

Why is the rise in IT revenue per head important?
A rise in revenue per head means that companies are earning more money for each employee, which is a good sign for business growth and efficiency.

What might have caused this 6% increase in revenue?
The increase could be due to higher demand for IT services, better productivity, or companies charging more for their services.

How does this increase in revenue per head impact employees?
If revenue per head is rising, it may lead to better job security, potential salary increases, or more investment in employee benefits.

Is the growth in revenue expected to continue?
While the report shows positive growth, it’s hard to predict the future. Companies will need to adapt to Market changes to maintain or increase revenue.