Value-Added Resellers (VARs)<\/strong> \u2013 Companies enhancing and reselling IT products with additional features and support services.<\/li>\n<\/ul>\n\n\n\nMethodology<\/h2>\n\n\n\n Countries<\/strong> included: Australia, Austria, Belgium, Bulgaria, Canada, Denmark, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Luxembourg, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland, United Kingdom, United States.<\/p>\n\n\n\nRevenue size of constituents:<\/strong> at least $10 million as of 3 June 2024 when the Index was originally created.<\/p>\n\n\n\nThe index started with 95 public IT services companies on January 1, 2015, and had 187 companies as constituents on Aug 30, 2024.<\/p>\n\n\n\nAventis IT Services Valuation Index<\/h2>\n\n\n\n Due to the fact that the IT services industry is cyclical<\/strong>, the Aventis IT Services index showed a steady rise between 2015 and 2018, with the index growing from 100 pts to 245 pts. This was followed by a plateau phase and decline in 2019.<\/p>\n\n\n\nOver the analyzed period, our IT Services index grew by 6x, i.e., a compounded growth rate of around 21%. During the same period, the index (excluding Indian IT services companies) grew by only 4x, i.e., a compounded growth rate of ~15%.<\/p>\n\n\n\n
The strong performance of the India-inclusive index suggests that investments in Indian IT services companies could yield higher returns, albeit with potentially higher volatility.<\/p>\n\n\n\nAventis IT Services Index<\/p><\/clipPath><\/defs><\/g><\/g><\/g><\/g><\/g><\/g><\/g>644<\/text><\/g>409<\/text><\/g>0<\/text><\/g>100<\/text><\/g>200<\/text><\/g>300<\/text><\/g>400<\/text><\/g>500<\/text><\/g>600<\/text><\/g>700<\/text><\/g>800<\/text><\/g>2015<\/text><\/g>2016<\/text><\/g>2017<\/text><\/g>2018<\/text><\/g>2019<\/text><\/g>2020<\/text><\/g>2021<\/text><\/g>2022<\/text><\/g>2023<\/text><\/g>2024<\/text><\/g>2025<\/text><\/g>Index<\/text><\/g>Aventis IT Services Index<\/text>incl. Indi<\/text>a<\/text>Source:<\/text>Capital IQ, as of<\/text>March 2025<\/text>Note: S&P index value is rebased and starts from \u2018100\u2019 from<\/text>01\/01\/2015<\/text>Aventis IT Services Index<\/text>excl. Indi<\/text>a<\/text><\/g><\/svg><\/figure>\n\n\n\nThe high valuation of Indian IT services companies, as compared to their global peers, can be attributed to several strategic and structural advantages beyond the emerging market label.<\/p>\n\n\n\n
\nCost efficiency & scalability<\/strong>: Indian IT firms maintain cost structures significantly lower than their global competitors, mainly due to labor arbitrage. This allows them to offer competitive pricing while maintaining healthy profit margins. Coupled with India’s massive talent pool, these companies can scale rapidly and offer large-scale project capabilities, which is highly attractive to global clients.<\/li>\n\n\n\nGlobal delivery model:<\/strong> Indian IT firms pioneered the global delivery model, enabling 24\/7 work cycles and faster project delivery by leveraging teams across different time zones. This model is particularly effective for complex IT services such as consulting, application development, and infrastructure management.<\/li>\n\n\n\nOne of the largest hubs for IT outsourcing:<\/strong> Specialization in outsourcing helps Indian firms generate high, recurring revenue streams from long-term contracts.<\/li>\n\n\n\nResilience & adaptability:<\/strong> Indian IT services companies have shown resilience in facing global economic slowdowns, geopolitical shifts, and the recent COVID-19 pandemic.<\/li>\n\n\n\nDigital transformation & cloud services:<\/strong> Many of these firms have aggressively pivoted toward high-growth areas like digital transformation, AI, cloud computing, and data analytics.<\/li>\n<\/ul>\n\n\n\nTo better understand the performance of the IT services industry, we can compartmentalize it into three phases, each with its distinct characteristics and key drivers:<\/p>\n\n\n\n
Pre-2020: Stable and rationale growth phase of IT services<\/h3>\n\n\n\n The period between 2015 and 2019 was characterized by the rise of digital transformation efforts by corporations<\/strong>. The demand to shift to cloud computing and improve existing infrastructure made IT services companies worthy beneficiaries of more business from existing and new clients.<\/p>\n\n\n\nThis translated into higher revenues and stable profitability margins<\/strong>, pushing the Aventis IT services index slowly but stably higher from 100 points to 245 points, a roughly 25% compounded annual growth in four years.<\/p>\n\n\n\n2020-22: Disruption and consequent hype phase<\/h3>\n\n\n\n The global pandemic in 2020 coerced corporations to adjust to remote working<\/strong>, and this was no easy change. As lockdowns and uncertainty kicked in, global asset prices took a hit, and IT services were no exception. Aventis IT services valuations index was uprooted from its stable and growing phase and experienced a crash of roughly 35% between February and March 2020.<\/p>\n\n\n\nHowever, the IT services industry quickly recovered from these lows<\/strong>. Over the next two years, Aventis IT services peaked at an all-time high of 661 points before taking a breather. We attribute the reason for this rapid recovery to the following:<\/p>\n\n\n\n\nThe demand for IT services increased massively during the pandemic<\/strong> as corporations raced to ensure they had the necessary tech infrastructure to support the work-from-home revolution.<\/li>\n\n\n\nThis phase was also characterized by high YoY revenue growth for IT services companies<\/strong>, as shown in our research on IT services valuation multiples<\/a>.<\/li>\n\n\n\nCentral banks globally focused on stimulating the economy to avoid a recessionary spell, and this prompted quantitative easing through lower interest rates.<\/strong><\/li>\n\n\n\nInterest rates and cost of capital are inversely related to the valuation of a company, so as the interest rates went down, valuations of IT services companies boomed<\/strong>.<\/li>\n<\/ul>\n\n\n\nPost-2022: New macroeconomic reality for IT services<\/h3>\n\n\n\n Even though inflation was eating into companies’ net profits, IT services have done a fairly good job of passing on this cost increase to the clients on the back of huge demand. The AI hype also allowed IT services companies to jump and get a piece of the action<\/strong> by providing services related to AI cloud transformation, AI consulting, and more<\/strong>. Thus justifying why the IT services index is still holding up at elevated levels, but there is no guarantee that this can be sustained.<\/p>\n\n\n\nIT services is a cyclical industry<\/strong>, and a plateau or decline follows every growth phase. Aventis IT services index experienced volatility during 2023 but as of Dec 2024, the index is treading close to its all-time high.<\/p>\n\n\n\nThere are several reasons for the volatility experienced:<\/p>\n\n\n\n
\nWith rampant inflation across the world, central banks pivoted to quantitative tightening<\/strong>, thereby increasing interest rates that affected the valuations of IT services companies negatively<\/li>\n\n\n\nThe increasing interest rates also limit the ability of IT services companies to borrow cheaply<\/strong> and invest in growth projects to maximize revenue and, eventually, stock prices.<\/li>\n\n\n\nHowever, the ongoing hype and advancements in artificial intelligence<\/strong> present significant opportunities for innovation and efficiency, which could lead to substantial cost reductions and improved profit margins. <\/li>\n\n\n\nAdditionally, the prospects for revenue growth remain promising, driven by the continuous demand for technological advancements and digital transformation. <\/li>\n<\/ul>\n\n\n\nAs a result, investors may anticipate another growth cycle on the horizon, balancing the current slowdown with the potential benefits of AI and cost efficiencies.<\/p>\n\n\n\nEV\/EBITDA Vs Next 2Y average revenue growth<\/p><\/clipPath><\/defs>21.2% CAR<\/text>Source: Aventis Advisors analysis as of<\/text>March 2025<\/text><\/g><\/g><\/g><\/g><\/g><\/g><\/g>0.0x<\/text><\/g>2.0x<\/text><\/g>4.0x<\/text><\/g>6.0x<\/text><\/g>8.0x<\/text><\/g>10.0x<\/text><\/g>12.0x<\/text><\/g>14.0x<\/text><\/g>16.0x<\/text><\/g>0%<\/text><\/g>4%<\/text><\/g>8%<\/text><\/g>12%<\/text><\/g>16%<\/text><\/g>20%<\/text><\/g>24%<\/text><\/g>2015<\/text><\/g>2016<\/text><\/g>2017<\/text><\/g>2018<\/text><\/g>2019<\/text><\/g>2020<\/text><\/g>2021<\/text><\/g>2022<\/text><\/g>2023<\/text><\/g>2024<\/text><\/g>2025<\/text><\/g><\/g>2Y forward revenue growth<\/text><\/g><\/g>Trajectory<\/text><\/g><\/g>Median EV\/EBITDA<\/text><\/g><\/g><\/svg><\/figure>\n\n\n\n
![\"Banner](\"https:\/\/aventis-advisors.com\/wp-content\/uploads\/2024\/11\/Screenshot-2025-03-21-103809.png\")
<\/figure>\n\n\n\n