Recurring Revenue: Fueling India’s IT Sector in 2025

India’s Information Technology (IT) sector is undergoing a seismic shift, with recurring revenue emerging as the ultimate accelerator for growth and M&A pricing. For senior leaders and decision-makers, mastering recurring revenue models like subscriptions and Software-as-a-Service (SaaS) is critical to unlocking premium SaaS valuation and driving competitive IT deals. This article, informed by expertise in management, finance, legal, and technology, explores how recurring revenue reshapes India’s IT landscape, influences M&A pricing, and offers actionable strategies for maximising value.

Why Recurring Revenue Matters in India’s IT Industry

The transition from project-based billing to recurring revenue models has revolutionised India’s IT sector and the global M&A landscape. Unlike one-off projects, recurring revenue through subscriptions and SaaS delivers predictable cash flows, enabling firms to forecast earnings accurately, allocate resources efficiently, and invest in innovation. This predictability reduces financial risk, making companies with strong recurring revenue highly attractive to buyers.

Recurring revenue also fosters customer stickiness, as subscription models create long-term relationships, reducing churn and increasing customer lifetime value (CLTV). Enhanced revenue visibility further empowers firms to plan strategically, positioning them as future-proof businesses in IT deals. With India’s SaaS market projected to reach $9.22 billion by 2029 (25% CAGR), recurring revenue is a strategic imperative for tech firms seeking sustainable growth and premium M&A pricing.

1. Recent Trends in Recurring Revenue and M&A

Several trends underscore the growing dominance of recurring revenue in India’s IT sector as of July 2025:

• Surge in SaaS Adoption: Mid-market firms are rapidly adopting SaaS solutions for their scalability and cost-efficiency. India’s SaaS industry is on track to generate $20–25 billion in revenue by 2025, with companies like Zoho and Freshworks leading the charge. This shift significantly boosts recurring revenue streams.
• Private Equity Appetite for ARR-Driven Firms: Private equity (PE) firms are aggressively targeting businesses with high Annual Recurring Revenue (ARR). In 2025, PE-backed M&A activity in India’s tech sector surged to $5.3 billion, a 227.6% increase, with recurring revenue driving valuations at 11.7x EV/TTM revenue for firms with net retention rates above 120%.
• Startups Pivoting to Recurring Revenue: Indian startups are shifting from project-based models to subscription-based recurring revenue streams to enhance SaaS valuation. Fintech SaaS firms leveraging India’s digital infrastructure (e.g., UPI, Aadhar) are seeing rapid adoption and higher M&A pricing.
• SEBI’s Disclosure Norms: In 2025, SEBI introduced stricter disclosure norms for tech IPOs, mandating detailed reporting of recurring revenue metrics like ARR, Monthly Recurring Revenue (MRR), and churn rates. These norms enhance investor confidence and underscore the importance of recurring revenue as a core indicator of financial health.

2. How Recurring Revenue Shapes M&A Pricing

Recurring revenue profoundly impacts M&A pricing, commanding premium valuations due to its predictability and stability. SaaS firms with robust Subscription revenue consistently achieve higher EBITDA multiples (10–15x) compared to project-based IT services firms (6–8x). Key financial metrics that drive valuations include:

• ARR and MRR: These metrics reflect the scale and consistency of Subscription revenue. Firms with ARR exceeding $10 million often secure valuations of 5.5x or higher.
• Net Retention Rate (NRR): An NRR above 120% signals strong customer loyalty and upsell potential, yielding a 109% valuation premium over the industry median.
• Churn Rate: Low churn (5–7% annually) indicates sustainable recurring revenue, while high churn (above 20%) can depress valuations.

Subscription revenue also influences deal structuring. Buyers often tie earn-outs to ARR or MRR growth, aligning incentives and mitigating risk. For instance, a SaaS firm with consistent Subscription revenue growth may negotiate higher upfront payments, while volatile streams lead to contingent payouts. Recent Indian SaaS acquisitions, such as Tata Consumer Products’ acquisition of Capital Foods, highlight how Subscription revenue drives valuations, with multiples 2–3x higher than traditional IT services.

3. Strategic Implications for Sellers, Buyers, and PE Firms

• For Sellers: Maximising M&A Pricing

To optimise M&A pricing, sellers must prioritise recurring revenues growth and robust financial metrics:

1. Grow Subscription Revenue: Transition to subscription models or annual contracts. Offering tiered pricing or usage-based plans can boost MRR and reduce churn.
2. Improve Retention: Invest in customer success and AI-driven personalisation (adopted by 52% of SaaS firms in 2025) to achieve NRR above 120%.
3. Package Metrics Effectively: Present clear ARR, MRR, and churn data with historical trends and projections. Transparent metrics build buyer confidence and justify premium SaaS valuation.

• For Buyers: Due Diligence on Subscription Revenue

Buyers must rigorously evaluate Subscription revenue streams:

1. Contract Stickiness: Assess contract terms, renewal rates, and termination clauses. Single-year contracts (77% of SaaS agreements) require scrutiny for renewal risks.
2. Customer Concentration: Ensure Subscription Revenue isn’t overly reliant on a few clients to mitigate risk.
3. Upsell Potential: Evaluate opportunities for cross-selling or upselling, which amplify Subscription Revenue growth without significant acquisition costs.

• For PE Firms: Roll-Up Strategies

PE firms are leveraging roll-up strategies to consolidate SaaS companies with complementary recurring revenue streams. By integrating firms with high ARR and low churn, PE investors create synergies and command higher exit multiples. Combining HRTech and fintech SaaS platforms, for example, enhances cross-selling and drives recurring revenue growth.

Illustrative Case Studies

• HRTech SaaS Success: An Indian HRTech SaaS firm shifted from project-based consulting to annual subscription plans. This pivot increased its recurring revenue by 40% in 18 months. The company achieved a net retention rate of 125% and kept churn at just 4%. In 2024, it secured a US PE acquisition at an 8.5x ARR multiple. The shift boosted M&A pricing with a 2x EBITDA uplift.
• Fintech SaaS Acquisition: A Bengaluru-based fintech SaaS startup leveraged UPI and reached an ARR of $15 million. Its net revenue retention (NRR) stood at 130%. In 2025, the firm was acquired at a 9x EV/Revenue multiple. The deal shows how strong Subscription revenue drives premium SaaS valuation in competitive IT deals.

Conclusion

In 2025, recurring revenues is the cornerstone of India’s IT sector, reshaping M&A pricing, SaaS valuation, and IT deals. For senior leaders, prioritising recurring revenue growth, optimising financial metrics like ARR and churn, and aligning with SEBI’s disclosure norms are essential to unlocking value. Sellers must focus on retention and transparent metrics, while buyers and PE firms should emphasise due diligence and strategic consolidation. By leveraging recurring revenue, Indian IT firms, with support from experts like LawCrust, can secure premium valuations and lead the global tech M&A landscape.

About LawCrust

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