Limited Period Offer:Be a PRO for 1 month @Rs49/-Multiple payment options available. Know More
you are here: HomeNewsBusiness

How did mid-tier IT firms perform in Q3 FY21?

Just like top IT firms, tier II IT firms too have been among the biggest gainers during the pandemic as their stock prices more than doubled since April 2020.

January 27, 2021 / 05:00 PM IST
4. Hyderabad | Weighted Average Compensation: Rs 8.5 lakh per year (Image: Moneycontrol)

4. Hyderabad | Weighted Average Compensation: Rs 8.5 lakh per year (Image: Moneycontrol)

 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Confounding the naysayers, mid-tier IT firms clocked one of their largest deal wins amid the pandemic during the third quarter of  FY21. With the focus on cloud and large deal pipelines, these companies are now looking at strong growth in Q4, say IT executives and analysts.

This confidence can be attributed to the sharp focus on new age technologies like cloud, client mining and the resulting large deal wins.

Mid-tier IT  companies such as L&T InfotechMphasis and Mindtree have posted strong year-on-year growth for the quarter ending December 2020 ,and have signed some of their largest deal wins during this period.

Larger peers such as TCSInfosysWipro and HCL Tech too have seen large deal momentum coming back with these firms signing large multi-million dollar deals during the third quarter of FY21. Infosys clocked its all-time high deal win of $7.13 billion in a quarter for Q3 FY21.

Just like top IT firms, tier II IT firms too have been among the biggest gainers during the pandemic as their stock prices more than doubled since April 2020.

Close

Analysts and IT firms expect this growth momentum to continue in coming quarters.

Why is this so?

Large deal wins

L&T Infotech won net new deal total contracts to the value of $278 million for the quarter ending December 2020. Mphasis' new deals wins stood at $247 million and Mindtree’s was $312 million.

Nitin Rakesh, CEO, Mphasis, in a recent interaction pointed out that average deal sizes are larger and also longer compared to what they were two years ago.

“Two years ago, our average large deal was about $29 million. Now it is $62 million. Not only are we doing large deals consistently, we are doing larger deals consistently,” he explained.

This comes on the back of the need for enterprises to scale their existing business models. “Last year was about can we apply whatever short-term fix we need to apply and keep our business running. Now they (clients) are saying, we know this works. But now can we make this at scale and is this the new way of doing business,” Rakesh said.

He added that this technology transformation is a 2-4-year journey and would be a growth driver for the company. The continued deal intake, analysts pointed out, would augur well for the company’s growth in the coming months.

The higher order intake was also aided by these companies' focus on cloud and new age technologies

Focus on cloud, new age tech

Take for instance, L&T Infotech. The firm will now have a separate focus on cloud, which is expected to generate $1 billion in revenue in the next 2-3 years from the current $185 million. Brokerage firm BOBCAPS said in a note that this was one of the reasons for the large cloud-based deals that the company won.

Mindtree’s cloud portfolio now accounts for about 19.2 percent of the overall revenue from 15.9 percent in the same quarter last year. Brokerage firm Motilal Oswal said in a note that the firm will benefit from the strong demand environment in the areas of cloud, given its high exposure to the segment.

Mphasis in its Q2 FY21 earnings call indicated that its cloud pipeline has seen a 300 percent increase as enterprises adopt them on scale.

Client mining

Client mining has also become a key focus for firms to generate revenue.

For L&T Infotech, though the revenue from top clients continues to decline on a year-on-year basis, analysts have pointed out that this has stabilized as the top 20 accounts grew 4.5 percent sequentially in Q3 FY21.

Morgan Stanley also pointed out in a note that LTI’s client mining had improved, leading to strong growth rates. The leadership during the earnings call last week said that it intends to mine its top 50 clients more and rationalize client accounts less than $1 million.

Mindtree, too, has been focusing on mining its top clients. Revenues from the top 10 clients have increased from 45.6 percent in Q3 FY20 to 49 percent in Q3 FY21. However, analysts pointed out that the company’s dependence on its top client presents a risk. Its top client, Microsoft, contributes 28.5 percent of overall revenues for the company.

In addition, Mindtree’s revenues declined 0.4 percent YoY, in part due to its large exposure to the travel and hospitality sector. Before the pandemic, the sector accounted for about 16 percent of its revenues. Now it accounts for about 8.9 percent of revenues.

To tap growing opportunities in the healthcare space, the firm is in the process of rolling out its healthcare strategy. “The strategy is defined and rolling out is in progress as we speak. We have completed the hiring for healthcare business leaders in the US. From our point of view, the ball has started rolling,” said Venu Lambu, Executive Director and President, Global Markets, during the Mindtree’s Q3 FY21 earnings call on January 18.

“We have started putting across the plan of leveraging our capabilities into these two segments. As we start rolling this strategy on the ground we will start looking for opportunities where we can bring synergies and capabilities together,” he added.

For Mphasis as well, revenues from top clients have increased to 52 percent in Q3 FY21 from 47 percent for the same quarter last year.
Swathi Moorthy
first published: Jan 27, 2021 05:00 pm

stay updated

Get Daily News on your Browser
Sections