Companies such as LTIMindtree and Persistent noted that they are increasingly getting an opportunity to bid for bigger deals due to their strong execution that was only open to large caps in the past.
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“We would never get a seat on the table when we were operating as different organisations (LTI and Mindtree) but now people acknowledge the fact that we can be an agile and nimble organisation that can be competing with anybody else (for large deals and renewals),” Debashis Chatterjee, chief executive of LTIMindtree told ET.
Pareekh Jain, founder of EIIRTrend, said that while the larger IT majors are chasing deals above the $100 million range, it has opened up a window for mid tier companies to bid and qualify for an increasing number of deals in the less than $100 million range.
“These are still very large deals for midcaps and in the current ecosystem, large caps are focused on bigger deals. These clients also tend to be relatively small for the bigger peers,” said Jain.
He added that while sectors like BFSI and hitech are down currently, there is good demand from healthcare and life sciences, manufacturing, and ER&D where the mid tier companies have a good play.
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Similarly, Persistent Systems reported its highest-ever quarterly TCV of $521.4 million led by a strong share of renewals. Unlike its larger peers, Persistent management said that it continued to see a good pace of deal ramp-ups including large deals signed in recent quarters.
Sandeep Kalra, CEO of Persistent Systems, told ET, that crossing the $1 billion revenue mark last year has helped the company qualify for much larger deals than it had historically.
“So even if someone wants to give us $100 million a year kind of revenue, it is 10% of our revenue. Earlier, we were not being invited to those deals but today, we are being looked at as a disruptor in the bigger outsourcing ecosystem,” said Kalra.
Midcap IT results were a mixed bag with the likes of LTIMindtree, Zensar and Happiest Minds missing estimates while Persistent, Coforge, and LTTS performed better than expected in a quarter that is historically a weak one for the industry.
However, strong deal execution and timely ramp-ups in the midcap segment have kept analysts bullish about the near-term prospects of the companies. This comes at a time when IT large caps like TCS, Wipro, Tech Mahindra reported muted or much lower deal wins while Infosys and HCLTech reported good uptick in the order book but continued to indicate slow conversion.
India’s sixth largest IT major by revenue, LTIMindtree reported weak revenue growth in Q3 while calling out higher-than-expected furloughs (employee absences) and a lack of discretionary spending. The company also said that it will take an additional three to four quarters to achieve its aspirational margin band of 17-18%.
However, its deal total contract value (TCV) of $1.5 billion showed a strong 15% sequential and 20% year-on-year growth which saw a healthy share of vendor consolidation and cost optimisation deals.
A Coforge report by Nirmal Bang Institutional Equities said that as the company continues to grow at its current pace, it will face competition from larger peers in the BFSI segment. The company reported a $354 million TCV in Q3 FY24 with three large deals one net new plus two renewals.
“The management is confident that it will be able to initiate strong deal ramp-ups in 4QFY24 and has also hired to support this growth. It also clarified that leakages in conversion from TCV to revenue (which has been the problem in the industry) are not material due to strong execution,” the brokerage said. The company is however expected to meet the lower end of its revenue growth guidance of 13-16% for the full year, a first for the company, said the report.
Even in the case of Happiest Minds which reported numbers slightly below estimates, YES Securities said that the deal pipeline supports its revenue growth visibility. While there are no cancellations of projects or pricing pressure witnessed by the company, there have been delays in revenue recognition due to the general slowdown.
Meanwhile, Zensar Technologies reported a weak performance due to higher impact of furloughs and has carved out a new healthcare vertical to tap into the demand in this segment. A report by Motilal Oswal said that the company is reaping the benefits of earlier investments leading to a larger addition of strategic Fortune 500 clients.