Client base at mid-tier IT cos remains intact

There are some early indications that we may start to see some level of recovery in the late Q2 and building after that. Much depends on greater macro environment and if the soft landing of economy happens - Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz

Weathering Odds

• During slowdown, clients prefer to work with large firms
• This is leading biz loss for mid-tier IT firms
• However, mid-tier IT firms able to sustain client count with minimal decline

Bengaluru: Mid-tier IT firms are able to sustain their client base in a tough economic environment and are not losing out to vendor consolidation that usually kicks up during slowdown in the IT sector.

Data from investor presentation of most mid-tier IT services firms indicate that their client base remained intact though the volume of work had declined in the last two quarters owing to the low IT spending by enterprises.

Experts in the know said that Indian mid-tier IT firms are able to provide distinct offerings to their clients. That is the reason that clients continue to work with them in specific areas despite giving out large outsourcing deals to big IT services companies.

Usually, clients prefer to work with a single vendor during the period of slowdown, leading to vendor consolidation. While this leads to cost savings for clients, mid-tier IT firms lose out to large IT firms during such period.

However, the data from the first three quarter earnings of FY24 showed that client count remained almost similar for most mid-tier IT firms.

For instance, Coforge, which is consistently posting industry-leading revenue growth rate in the current fiscal year, had 24 clients in the $10 million or more category as compared to 21 in FY23. Its client base in $5 million- $10 million category remained same at 23, while $1-$5 million client base improved to 109 by the end of December quarter of FY24.

For Birlasoft, client base in all three categories remained almost at a similar level in Q3 of FY24 as compared to previous quarters. Similarly, for Happiest Minds, million dollar plus customer base was at 45 in December quarter as compared to 44 in the previous one. Moreover, the company was able to maintain its average revenue per customer at $808,000, indicating the volume of work had not declined for the Bengaluru-headquartered IT firm.

For Tech Mahindra, which is the biggest mid-tier IT firm in Indian IT industry; though the company lost two $50 million plus clients in the third quarter to take it to 24, its $20 million plus client base increased to 65. Similarly, for another mid-tier IT firm- Mphasis, though the client base in the $50 million plus category declined owing to low demand in mortgage market, its large clients remained constant, while it improved its client base in $10 million plus category.

Experts are of the opinion that once demand comes back, mid-tier IT firms will be the first ones to see growth revival on the back of higher number of digital deals. Most analysts are expecting a growth revival in the next two quarters.

“There are some early indications that we may start to see some level of recovery in the late second quarter and building after that. Much depends on greater macro environment and if the soft landing of economy happens,” Peter Bendor Samuel, CEO of global consultancy firm, Everest Group, told Bizz Buzz.