Pakistan’s Information Technology (IT) exports for April 2023 declined by 15% MoM. Segment wise Telecom and Computer Services declined by 36% and 9% MoM respectively. Among Computer Services, Other Services decreased by 14% MoM and Software Consultancy and Software Exports also decreased by 3% and 8% MoM respectively. April 2023 IT exports declined on a MoM basis due to lesser number of working days in April 2023 compared to March 2023. As per our banking channel checks, lesser number of clearing days has an impact on realization of proceeds.
Services Exports (Excluding IT) of Pakistan have also declined by 24% MoM due to the reason cited above.
IT Export proceeds realization per day improved in April compared to March.
On a YoY basis, IT export number for April 2023 decreased by 23% to US$191mn due to 50% YoY decline in Telecom and 15% YoY decline in Computer Services.
The reported IT export number indicates the amount remitted back to Pakistan by technology companies. According to our channel checks, IT companies are retaining a greater portion of their proceeds outside the country due to declining business confidence and volatility of exchange rate.
In 10MFY23, IT exports have declined by 3% YoY to record US$2.13bn.
April 2023 exports is the fourth instance of dip below US$200mn in FY23. Average monthly exports in current fiscal year now stands at US$213mn. At this rate IT exports would stand at US$2.56bn by which would be a decline of 2% YoY vs FY22.
Slowdown in IT exports are mainly indicative of a global slowdown in IT spending. Gartner (Technology Research and Consulting firm) reported that 2022 global IT spending slowed down to 0.5% in 2022 compared to 9.5% growth in 2021.
As a result of higher MoM decline in rest of services exports besides IT, IT exports as % of total exports increased to 7.4%. This is compared to 7.3% in Mar-23 and 6.6% in Apr-22.
In 10MFY23 IT exports as % of total exports stand at 7.3% compared to 6.7% in 10MFY22.
Segment wise breakdown for the month of April 2023 indicates that Telecom Services decreased by 36% MoM and by 50% YoY to US$28.9mn and Computer Services decreased by 9% MoM and by 15% YoY to US$161.8mn.
The total share of Telecom/Computer Services exports for April 2023 stood at 15%/85% respectively compared to 23%/77% share in April 2022.
In 10MFY23 Telecom/Computer share of exports stood at 19%/81% compared to a 20/80% share in 10MFY22. This is because Telecom Services exports have declined by 8% YoY in 10MFY23 vs. a decline of 2% YoY in Computer Services exports.
Net IT Exports (Exports-Imports) for April 2023 have decreased by 16% MoM and 13% YoY to US$168mn. 10MFY23 Net exports have increased by 13% YoY to US$1.89bn compared to a decline of 3% YoY in overall IT exports number.
Net IT Exports on a TTM basis as of April 2023 also have grown by 13% YoY to US$2.23bn.
Going forward, despite the global slowdown, software and IT services spending is expected to increase by 12% and 9%, respectively in 2023, according to Gartner research, against the overall growth estimation of 5.5% for 2023.
This presents an opportunity for companies such as Systems Limited (SYS), which is our top pick in the IT sector. SYS currently trades at a 2023 PE of 12.3x and PS of 2.4x.
Courtesy- Topline Securities