Midsize IT cos in a fix as deals hit slow lane
Fall in total contract value doesn’t augur well for coming quarters along with the next fiscal year
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Bengaluru Several mid-tier IT services companies are facing higher risks to revenue growth rates in coming quarters as compared to their bigger peers owing to fall in overall deal pipeline. While large IT firms, despite growth bumps in the first quarter, posted strong deal pipeline, many mid-tier firms saw a drop in their deal bookings during the first quarter.
According to experts, such fall in total contract value doesn’t augur well for the mid-tier companies in coming quarters along with the next fiscal year.
“Several mid-tier IT firms have seen a dip in overall deal bookings in the first quarter. This doesn’t put them in good standing as far as growth is concerned in the next fiscal year. As compared to mid-tier firms, sound deal pipeline puts large IT firms in a good stead for the next fiscal year,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told Bizz Buzz.
Tech Mahindra’s total contract value (TCV) or deal wins stood at $359 million for the quarter, showcasing a decline of 39.36 per cent from the previous quarter’s $592 million. Persistent Systems, another midsize IT company, reported a trailing twelve month TCV (total contract value) of $380 million in the first quarter of current fiscal as compared to $422 million reported in the previous quarter. Birlasoft signed deals of TCV worth $146 million during the first quarter of FY24 as compared to $286 million in the previous quarter.
As compared to several mid-tier firms, deal pipeline of large firms remained steady. TCS reported a robust order book of $10.2 billion. For Infosys, the total contract value of large deals was at $2.3 billion, which was a tad higher than $2.1billion reported in the previous quarter. The management also informed that Infosys has won another mega deal worth around $2 billion just after the close of first quarter. Similarly, Wipro had a total deal booking worth $3.7 billion, out of which $1.2billion came from large deals. Management of large firms indicated that enterprises are looking at saving costs, which is leading to more cost takeout outsourcing contracts in the market. Big firms are winning such large cost takeout deals owing to their full-spectrum offerings.
Despite winning such large outsourcing contracts, revenue addition from large deals remained low during the first quarter owing to ramp downs and holding back of work in projects. However, experts are of the opinion that whenever recovery comes, those companies with strong deal pipeline will be major beneficiaries, while weak pipeline may put revenue growth at risk.
While several mid-tier companies reported drop in TCV, there were many, which reported increase in TCV (total contract value) despite reporting subdued set of numbers. For instance, Mphasis’ new TCV wins were at $707 million in Q1 of FY24 as compared to $309 million reported in the previous quarter. Similarly, LTIMindtree reported a deal pipeline of $1.41 billion in the first quarter as compared to $1.35 billion reported in the previous quarter.
