Mid-tier IT companies with a sharp focus on niche industries and geographies and operating with a more agile organisational structure have a competitive advantage and fared better in some aspects compared with the larger peers during the September quarter.
Analysts believe mid-tier IT firms have certain advantages over large competitors, most of which are related to agility. “The most important is decision agility. I have observed that during negotiations, mid-tier firms are able to take scope and commercial-related decisions within hours while large companies may take weeks. Likewise, mid-tier firms are able to commit CEO or CXO level sponsorship to a large number of clients, which large companies can offer only to select clients. Human beings are driven by ego, so the CEO level engagement and sponsorship can be an important differentiator for mid-tier firms,” Abhisek Mukherjee, cofounder and director at Auctus Advisors, a management consultancy, said.
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Mid-tier firms have fared better than its larger peers during the second quarter, both in terms of growth in revenue and the total contract value (TCV) of deals. Bengaluru-based mid-sized IT provider Mindtree reported a strong sequential revenue growth of 7.2% in constant currency at $422.1 million. This marks its seven consecutive quarters of over 5% quarter-on-quarter growth in constant currency. It also reported a strong growth of 43.9% year-on-year in deal TCV which stood at $518 million.
“The demand environment for integrated digital transformation capabilities is broad-based and continues to be robust. Our H1 signings crossed $1 billion for the first time in our history,” Debashis Chatterjee, CEO & MD, Mindtree, said.
Pune-based Persistent Systems delivered a sequential revenue growth of 6.6% in constant currency to clock $255.6 million for the September quarter, crossing $1 billion in annualised revenue run rate. The TCV of deals grew 30.2% y-o-y to $367.8 million.
Noida-based Coforge, too, reported strong revenue growth of 6.2% q-o-q in constant currency. Its order intake stood at $304 million, its third consecutive quarter of $300 million plus deal wins. The management has retained a minimum of 20% y-o-y constant currency revenue growth guidance for FY23.
In contrast, larger peers grew at a relatively slower pace on a sequential basis. Tata Consultancy Services (TCS) and Infosys both reported a sequential revenue growth of 4% in constant currency terms for the second quarter. Wipro’s IT services revenue grew 4.2% sequentially in constant currency and projected a muted revenue growth guidance of 0.5-2.0%, below analyst estimates of 1-3%, for the third quarter.
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While large players are competing for mega deals worth over $1 billion, smaller players can focus on specific engagements that require deep technical expertise. This, according to analysts, is especially critical these days as digital projects are typically smaller and shorter.
“Large players require a minimum threshold size of deals to be profitable. Mid-tier players are able to play in a larger market owing to their scope and commercial agility,” Mukherjee said.
Niche players are also expected to gain from emerging geographies where IT spending is currently low but expected to rise as enterprises shift towards digital. Worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.1% from 2022, according to the latest forecast by research firm Gartner. The demand for IT in 2023 is expected to be strong as enterprises push forward with digital business initiatives in response to the economic turmoil.
