Mid-tier IT firms set for big growth

Bengaluru MID-TIER IT services companies are benefitting from the rising outsourcing to offshore locations like India despite bigger companies cornering the majority of the large deals.

Even though clients are shifting part of their work from small and mid-tier companies to tier-I IT firms, as part of the vendor consolidation process, mid-tier firms are also witnessing steady deal flow owing to demand uptick.

"Rising offshoring has benefitted all service providers, be it big companies or mid-tier firms. Though mid-tier firms were not able to bag large deals like their bigger peers, the deal flow remains healthy," said Pareekh Jain, an IT outsourcing advisor & founder of Pareekh Consulting.

"Therefore, double-digit revenue growth projections of most mid-tier firms are achievable in the current financial year," he added.

Last fiscal, large IT services firms including Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies had bagged multiple large deals from global clients. Analysts were of the opinion that vendor consolidation was the reason behind bagging such deals.

They had anticipated that mid-tier companies might lose out due to this process. However, the FY21 results of most mid-tier companies including L&T Infotech, Mindtree, Coforge, Mphasis reflected positive growth charts, dispelling the analysts' fears.

Indian IT industry, as a whole, has been benefitted from rising outsourcing work coming to the country, known as offshoring in industry parlance.

For instance, L&T Infotech saw the share of offshoring work increasing to 82.1 per cent in Q4 of FY21 as compared to 81.6 per cent in the past quarter.

Similarly, offshoring as part of effort mix for another mid-tier firm Mindtree rose to 82.9 per cent in Q4 of last financial year against 82.8 per cent in the previous quarter. In Q4 of FY20, offshoring used be 78.9 per cent for the company.

For Coforge, the billable people under the offshoring has risen, indicating rising offshoring effort for the company. This trend was reflected in case of engineering services companies like L&T Technology Services (LTTS). The offshore mix rose to 58 per cent in the fourth quarter of last fiscal year as compared to 57.1 per cent reported in the third quarter.

Therefore, rising offshoring was a phenomenon seen across the industry, benefitting all players.

Apart from offshoring, mid-tier companies also bagged deals in their respective specialised areas.

"Clients are looking for solutions not for a vendor (company). So, any company with superior solution can bag the contract. Also, many mid-tier firms have developed domain knowledge in specialised segments. This is helping them to win contracts in these verticals," said a Mumbai-based analyst. The optimism on growth has also reflected in the share prices of these companies. Many companies like Coforge, Mindtree, Mpahsis, L&T Infotech and Firstsource Solutions among others, have seen sound buying from investors.