Many mid-cap IT firms registered over 20 percent growth YoY for FY19 on the back increasing digital spend by enterprises.
Focus on select verticals, geographies and services, have made mid-cap IT firms like Mindtree and NIIT Technologies more agile and able to win larger deals, which has translated to higher growth, analysts say.
"Mid-cap firms took time to be courageous and focus on specific verticals and services, rather than poorly imitating their larger rivals. This is paying dividends," said Yugal Joshi, Vice President, Everest Group, a management consultancy firm.
Many of the mid-cap IT firms registered over 20 percent growth year-on-year for the fiscal ended March 31, 2019, on the back increasing digital spend by enterprises.
For instance, Mindtree’s revenue of $1 billion for FY19 was 28.5 percent growth, while NIIT Technologies’ revenue grew 23 percent. L&T Technology Services (LTTS) grew 24 percent on the back of an increase in electrification of vehicles, autonomous vehicles and over the top (OTT) systems. L&T Infotech (LTI) posted 29.2 percent growth in revenue for the past fiscal.
Joshi explained that as digital transformation gains pace, mid-cap IT firms with small base are more agile and well-positioned to cater to rising demands in the digital space.
Pareekh Jain, Founder of Pareekh Consulting, a technology consultancy firm agrees, "Overall mid-cap has shown agility and focus in account mining, moving to digital and getting large deals. Their base is smaller so it translates to higher percentage growth compared to their larger peers."
For instance, NIIT Tech focused on three verticals such as banking and financial services, insurance, and travel and transportation. Their geographical focus was the US and Europe.
In the case of Mindtree, hi-tech and media, retail, and CPG and manufacturing were key revenue generators. LTTS and LTI’s high growth was on the back of a few large deals and growth in digital.
However, while mid-cap firms are poised to grow because of focused verticals and geographies, a challenge arises due to a need for better account mining, say analysts.
Joshi said, "Even in their focused verticals mid-cap percentage spend on client budget when compared with their larger peers is low. They should build more client intimacy especially in digital transformation initiatives.""Educating the client and the market in this complex technology era will also help them position themselves as thought partners, rather than pure execution vendors," he added.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.