Mid-tier IT firms bet on cost takeout deals

Yes. We participated in a few cost takeout deals. For instance, with the one of our customers, where we had 50% of the wallet share, we also engaged with two, three other customers at the beginning of this year to work with them for coming up with a model whereby we could take over the entire work - Joseph Anantharaju, Executive Vice-Chairman of Happiest Minds, tells BizzBuzz

Renewed Deals Activity

• Mid-tier firms like Coforge, LTTS, Happiest Minds clinched deals in FY24
• Seen as major reason behind revenue growth in a tough demand environment
• Recovery in mid-tier space to be faster once technology spend comes back

Bengaluru: Mid-tier IT firms have been participating in the cost takeout deals in the last three quarters, allaying fears of losing out in the competition to larger peers. This was one of the primary reasons behind the resilience seen in the revenue growth of many mid-tier IT firms.

Notably, most mid-tier firms usually bag digital deals, whose flow has significantly reduced in 2023. This has raised fears that these IT companies might see big hit on their revenues in FY24. However, though revenue growth has moderated for mid-tier IT firms, most of these software services companies continue were able to post rise in their top lines.

“Yes. We participated in a few cost takeout deals. For instance, with the one of our customers, where we had 50 per cent of the wallet share, we also engaged with two, three other customers at the beginning of this year to work with them for coming up with a model whereby we could takeover the entire work,” Joseph Anantharaju, Executive Vice-Chairman of Happiest Minds Technologies, told Bizz Buzz.

Similarly, another mid-tier firm Coforge has seen good deal wins in the third quarter. Its order intake rose to $354 million during this period from $345 million a year earlier. The company management had indicated that it would be able to maintain its full-year revenue guidance 13-16 per cent in the ongoing financial year.

Engineering services firm L&T Technology Services had also seen sound deal wins in the cost takeout space during the third quarter. The company signed a total of six $10 million plus TCV deals across all industry segments that include one $40 million deal and one $20 million deal. Additionally, it signed two significant empanelment agreements.

As enterprises held back discretionary spend on technology space, several cost takeout deals have come to the market in the current financial year. This has been the mainstay of total deal bookings of the large IT firms.

Market leader Tata Consultancy Services (TCS) saw its bookings at $8.1 billion in Q3 of FY24, while Infosys large deal wins were at $3.2billion. Wipro’s large deal wins were at $0.9 billion in Q3, while it was $1.927 billion for HCL Tech.

“Like large peers, mid-tier IT firms have participated in the cost takeout space during the current financial year. Though the size of large deal for mid-tier firms is lower than large peers, such participation has ensured that revenue growth has not dipped. Ability of many mid-tier firms to provide specialised services in particular technology domain is seen as one of the major reasons behind this transition,” said a Mumbai-based analyst.

He also said that growth recovery would be faster in mid-tier IT firms once discretionary spend came back.