Lower growth likely at mid-tier IT cos

Global Headwinds

♦ Mid-tier firms post mixed set of numbers in Q2 with robust deal pipeline

♦ Many firms are hopeful of demand picking up in H2

♦Some reduced FY24 guidance amid tough demand environment

♦ Mid-tier IT firms bagging large cost takeout deals in recent quarters

Bengaluru: Most mid-tier IT firms showed a mixed set of performance with tepid revenue growth guidance and strong deal pipeline, mirroring a situation, which their larger peers were also facing in the current environment.

Management of most mid-tier firms said they were navigating a difficult demand environment though many were hopeful of a late second half recovery. In the second quarter ended September, LTI Mindtree’s revenue rose 1.7 per cent sequentially in constant currency term. The company’s management is hopeful of strong second half despite furloughs as they see ramps up from its strong deal pipeline.

Persistent Systems is another mid-tier firm, which reported strong set of Q2 FY24 numbers. Its revenue rose 3.1 per cent sequentially, while the total contract value (TCV) of its order bookings exceeded $475 million. Despite high exposure to discretionary spend, the company’s performance stood out among mid-tier companies.

“Our proactive approach and ability to adapt has enabled us to thrive in this uncertain macroeconomic environment leading to our highest-ever TCV,” said Sandeep Kalra, CEO and executive director of Persistent Systems.

Coforge, which has been consistently posting good results in recent quarters, continued the good streak. The company’s revenue rose 2.5 per cent on sequential basis, while order intake was at $313 million.

Meanwhile, there are some mid-tier firms, which slashed their revenue guidance for the ongoing financial year amid an uncertain economic environment.

Happiest Minds has cut its revenue guidance to 12 per cent in the current financial year from 25 per cent given earlier. According to the company, delay in closing a large acquisition led to slashing of company’s revenue guidance.

“We are revising our revenue growth guidance for the year to 12 per cent on an organic basis and we said whatever inorganic (acquisition) happen in the next six months is going to be on top of this,” Venkatraman Narayanan, MD of Happiest Minds, said.

According to experts, the divergence in the performance of mid-tier firms is similar to their big peers. “While some companies have posted decent results, many have cut their guidance. This phenomenon is playing out across the spectrum. As far as mid-tier firms are concerned, many of these companies are able to bag large cost takeout deals, which give sound visibility of revenue in the next financial year,” said a Mumbai-based analyst.

Share prices of most IT firms remain under pressure in Indian exchanges as investors are preparing for a demand slowdown. However, prices of some mid-tier firms have increased after positive commentary from the management.