IT exports down 23% in seven months of FY23

KARACHI: Pakistan’s information technology (IT) exports for January 2023 decreased 23 per cent on a month-on-month basis due to a 20 per cent and 35 per cent MoM decline in the computer and telecom services, respectively.

Among the computer services, the export of computer software and software consultancy decreased 25 per cent and 15 per cent MoM, respectively.

The substantial MoM decline in exports is indicative of the 10 to 15 per cent gap existing between the interbank and grey market rates of the dollar for most of January 2023.

After reduction of the gap between the interbank and grey market rates at the end of January 2023, the IT export proceeds realisation from the formal banking channels is expected to improve.

The IT exports number for January 2023 increased 2 per cent YoY to $190 million due to 8 per cent YoY increase in the telecom services.

The exports for January 2023 are lowest since May 2022, which was $184 million. The amount is below the six-month rolling average of $221 million.

On a broader level, a slowdown is being witnessed after April 2022, with YoY growth averaging 3 per cent in May 2022 to January 2023 period, compared with the average 32 per cent YoY growth in the prior nine months period of August 2021 to April 2022.

A slowdown in the IT exports are mainly indicative of a global slowdown in the IT spending. In its latest report, Gartner, a technology research and consulting firm, has revised down its growth forecast for the IT spending to 2.4 per cent in 2023 from the earlier 5.1 per cent.

The IT Ministry of Pakistan has set an export target of $5 billion for FY23. The current fiscal year monthly average run rate of $218 million indicates that Pakistan will miss the exports target by a huge margin.

In the seven months of FY23, the IT exports went up 2 per cent YoY to $1.52 billion. A slight growth has been due to 3 per cent YoY growth in the computer services to reach $1.22 billion.

As a result of the MoM decline in January 2023, the IT exports as a per cent of the total exports have declined to 6.8 per cent, compared with 6.2 per cent in January 2022 and 8.1 per cent in December 2022.

In the seven months of FY23, the IT exports as a per cent of the total exports stand at 7.4 per cent, compared with 6.9 per cent in the seven months of FY22.

The segment-wise breakdown for January 2023 indicates that the telecom services declined 35 per cent MoM and increased 8 per cent YoY to $29.7 million and the computer services decreased 20 per cent MoM and slightly increased YoY to $159.9 million.

The total share of the telecom and computer services exports for January 2023 stood at 16 per cent and 84 per cent, respectively, compared with 15 per cent and 85 per cent share in January 2022.

In the seven months of FY23, the telecom and computer exports stand at 19 per cent and 81 per cent, compared with 20 and 80 per cent share in the seven months of FY22.

This is because the computer services exports increased 3 per cent YoY in the seven months of FY23 driven by 12 per cent growth in the export of software and 6 per cent in the software consultancy.

The net IT exports (exports-imports) during the period under review increased 20 per cent YoY to $1.34 billion, compared with 2 per cent YoY growth in the overall IT exports for the same period.

The net IT exports on TTM basis as of January 2023 also grew 19 per cent YoY to $2.2 billion. The January 2023 monthly number has increased 23 per cent YoY to $178 million.

Going forward, despite the global slowdown, the software and IT services spending is expected to remain robust. Besides, the inflation-driven higher IT labour costs in the developed markets is expected to lead to more outsourcing.

This presents an opportunity for the companies such as Systems Limited, which is our top pick in the IT sector. SYS currently trades at a 2023 PE of 14.3x and the PS of 3.1x.