India SaaS companies could log $75 billion revenue by 2025

Bengaluru: India’s software-as-a-service (SaaS) industry has the potential to grow revenues to as much as $75 billion by 2025 and create market capitalisation of more than $1.3 trillion, capturing around 19% of global demand for software products by then, according to a new report.

This is the best-case scenario for India’s fast-growing SaaS industry, which has grown its revenues by five times—from $1 billion in 2015 to $5.3 billion in 2020—and has seen a 2X growth in the number of companies, the report by Chiratae Ventures and consulting firm Zinnov says.

Even if the industry’s current compounded annual growth rate (CAGR) of around 51% is maintained for the next five years, the country’s SaaS revenues could grow to as much as $42 billion by 2025, and the industry will cross the $1 trillion valuation mark sometime this decade, it said.

“In the last decade or so, the SaaS market from India has gone through a transformational change, whether it is in terms of the products, use cases, or the entrepreneurial surge that is coming in. We feel that this is a rising trillion-dollar opportunity,” said Praveen Bhadada, managing partner at Zinnov.

The report also projects that India’s SaaS sector could employ more than 260,000 people by 2025, up from around 50,000 today, as global funding and fast-paced growth, some of which has been accelerated due to the Covid-19 pandemic, drives the sector forward.

While revenue per employee for IT services companies in 2020 was around $47,000, the revenue per employee for SaaS firms had already topped $100,000 per employee last year, growing almost 30% over the previous year, it said.

“It’s no secret that the future of business and scale is SaaS-driven, more so in the post-pandemic landscape. What’s interesting, however, is how quickly Indian companies have set a global benchmark for the industry,” said Venkatesh Peddi, executive director and head of SaaS at Chiratae Ventures. “The exponential growth unlocked in the last five years is a testament to how capital efficient the Indian SaaS industry is.”

SaaS unicorns are more than twice as capital efficient as their consumer-facing peers, on average raising just $92 million before achieving a valuation of $1 billion, compared to $204 million raised by consumer startups, it said. This is driving a huge influx of capital into Indian SaaS, and has also drawn in major investors such as SoftBank, Tiger Global and others.

India’s SaaS sector has drawn in $6 billion in investments so far, of which $4 billion has come in the last three years alone, with over 600 global venture capitalists investing in the sector, according to the report.

The country’s software products sector has also developed a healthy pipeline of fast-growing firms over the last five years, with 5-8 companies having crossed the $100 million annual recurring revenue mark, 7-12 of them crossing the $50 million ARR mark, and 40-50 firms having an ARR of $10-$50 million.

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