Top mid-tier IT companies including LTI, Mindtree, Cyient and Persistent Systems continue to see steady growth in new client additions for the small to medium deal revenue categories, while in larger revenue brackets net new clients remained stagnant as of the second quarter ended September.
Industry analysts attribute this to the trend of splitting a mega transformation project into different levels and allocate them as smaller deals to more than one company.
The four companies together saw 303 net new client addition in the $1 million-plus revenue category, 175 in $5 million-plus and 83 in $10 million-plus in Q2FY22 as compared to 284, 152 and 63, respectively in the same quarter last year.
Piyush Pandey, Lead Analyst – Institutional Equities, YES Securities told BusinessLine, “Clients now a days prefer to go for a number of mid-tier IT companies rather than allotting the entire transformation project to one big company. They are splitting one big transformation into four-five smaller phases and offering to more number of companies. This offers flexibility to the client companies and they can allocate contracts on phase-basis and judge the outcome accordingly.”
‘Taking it step-by-step’
“Mega transformation deals are all inclusive starting from transitioning to cloud to providing business insights based on the data gathered. But for smaller client companies new to cloud, they tend to go step by step depending on their budgets. They will first move on cloud, and then depending on the data they are able to process, they will decide on the needs for the next phase,” Amit Chandra, Assistant Vice President, HDFC Securities told BusinessLine.
He added, “Manufacturing and hi-tech verticals have shown a sharp jump in deal wins, which was earlier dominated by BFSI and retail sectors. Engineering and R&D services have also reported very strong deal wins, and looks promising as a category.”
TCV matters
Although in smaller revenue buckets, over the past two years, many of the mid-tier IT companies have seen quarterly total contract value nearly double and the momentum is expected to continue with existing clients moving up the deal size ladder and newer companies coming to adopt cloud infrastructure.
Chandra said, “If you see the TCV numbers, there has been a significant jump in deal size over the past four quarters. On a trailing twelve–month (TTM) basis, overall mid-tier IT TCV has gone up by 30-35 per cent.”
Mindtree reported $360 million ($303 million) TCV in Q2FY22. TCV was way higher in Q1 at $504 million, the first time Mindtree crossed half a billion mark.
For peers like Mphasis, TCV more than doubled from the pre-pandemic numbers. Starting from $201 million in the pandemic quarter of Q4FY20, the company has been steadily growing in contract value reaching $360 million in Q2FY21 and $505 million in last quarter. As of Q2FY22, TCV stood at $241 million.
Cyient too recorded 22.5 per cent growth Y-o-Y in TCV or order intake. It stood at $156 million in FY22. Persistent System reported $282.5 million in TCV for Q2FY22.
