Did mid-tier IT services firms like Mindtree, L&T Infotech, Mphasis and Hexaware fare as well as their larger counterparts during the September quarter?

Most of the companies saw positive year-on-year (y-o-y) growth during the July-September quarter.

L&T Infotech reported 11.2 percent y-o-y growth to $404.5 million in the quarter, led by growth in banking and financial services. Hexaware reported 1.7 percent year-on-year growth to $214.1 million driven by growth in Europe as well as the healthcare and insurance verticals.

But Mindtree reported a decline of about 3.7 percent y-o-y at $261 million. The company had high exposure to the travel and transportation industry. Revenues from the sector have come down by half, contributing 8.3 percent from 16.9 percent in the same quarter last year.

Mphasis registered revenue of about $327 million, registering 7 percent year-on-year growth.

Deal momentum

The growth was possible thanks to the deal momentum companies saw during the September quarter.

Mid-tier IT services firms reported strong deal wins aided by vendor consolidation and client investments in technology to ensure business continuity as well as to stay relevant.

For instance, Mphasis’ total contract value (TCV) for the quarter was $360 million, including one large deal with a TCV of over $200 million. Close to 73 percent of these wins are for new-age technologies. This is the highest TCV win for a quarter, the company said.

L&T Infotech reported a 22 percent increase in its deal pipeline. During a recent interaction with Moneycontrol, Sanjay Jalona, CEO, L&T Infotech, said that the increase is because technology is now mainstream as clients embrace the new normal.

Hexaware, which will be delisted from stock exchanges effective November 9, saw one of its highest-ever deal wins at $154 million. In a recent interaction, CEO R Srikrishna said that cloud migration and automation are among the key drivers for growth in Q3 and he expects this to continue in the coming months as well.

However, even as these companies continue to perform well, those with large exposure to the affected sectors remain cautious. Mindtree’s overall TCV went down to $303 million from $391 million in the June quarter and $307 million in Q2 FY21.

Revenue contribution from top clients has come down as well. During the company’s earnings call, Debashis Chatterjee, Mindtree CEO, said the company saw a sudden spike in demand in the wake of the pandemic and that demand is now stabilising.

Outlook for upcoming quarters

Upcoming quarters are going to be a mixed bag for mid-tier companies, said analysts and IT executives. Sudheer Guntupalli and Hardik Sangani, research analysts at ICICI Securities, said in a note that the L&T Infotech management has hinted at large deal closures being delayed because of the pandemic. “The near-term growth outlook appears to have toned down (vs previous quarters),” the note said.

Mindtree’s Chatterjee said that the company is unlikely to see a recovery in the travel and transportation segment for several quarters. However, the company has added new clients and with its customers spending on tech, demand is likely to stabilise.

The second wave and absence of another US fiscal stimulus are a concern as well. Incumbent US President Donald Trump called off fiscal stimulus talks last month and any package will follow only after the US election on November 3. According to Hexaware’s Srikrishna, the recovery in the banking and consumer sectors may slow down without a stimulus.

The UK and some parts of Europe are have opted for a second lockdown and that is likely to impact the growth these companies have seen in that region.

In a report, brokerage firm Kotak Institutional Equities has pointed out that the second wave can impact clients’ spending ability. “Restoration of clients’ health is critical for IT companies to reach double-digit revenue growth,” the report added.