For IT Cos, Deal Size Likely To Shrink In Q2

Though there are many deals getting announced during the second quarter, most of these are likely to be small ones. Except a few ones signed by Wipro and HCL Tech, not many large deals ($500 mn or more) have not been signed during this period

Bengaluru: Indian IT firms are unlikely to report any major jump in their deal pipelines in the second quarter despite winning several outsourcing contracts during this period. Sources in the know said that not many numbers of large deals worth more than $500 million are signed during the July-September period.

“Though there are many deals getting announced during the second quarter, most of these are likely to be small ones. Except a few ones signed by Wipro and HCL Tech, not many large deals ($500 mn or more) have not been signed during this period,” said an IT sector executive, working in the sales domain.

The person said that deal sizes are getting smaller and enterprises are preferring to give deals across IT vendors than concentrating it within a few vendors.

“Enterprise deal sizes become more fragmented and benefiting mid-caps versus one-shot large mega deal awarding to a single large vendor, in a bid to de-risk vendor dependency,” brokerage firm, Prabhudas Lilladher wrote in a note.

Industry experts said that such diversification of the risk is the reason, which is helping mid-tier IT services companies to win good number of outsourcing contracts.

However, they opined that second quarter would see sound deal pipelines in line with the first quarter.

“Deal flow remains good. Though there may not be drastic improvement, it is likely to be at a similar level of Q1 of FY25,” said another source.

While total contract value (TCV) may not see a surge, deal conversion has improved in the second quarter. Clients are giving work orders more frequently, leading to higher volume of work. “Revenue conversion from deals is India’s largest IT services company, Tata Consultancy Services will announce its second quarter results on October 10, while Infosys will do so on October 17.

Most analysts expect better management commentary during the second quarter, given the sound results of Accenture in recent weeks.

“Outsourcing business of Accenture (around 50 per cent of mix) continued its strong momentum in both bookings & revenue. Outsourcing revenue grew by 7 per cent YoY (year on year) CC in Q4 to $8.1 billion, while bookings grew by 41 per cent YoY. The strong growth momentum in outsourcing is a positive read through for Indian IT services companies,” Prabhudas Lilladher said in the report.

Notably, analysts are also expecting uptick in hiring during July-September period, which is an early indicator of demand uptick in coming quarters.