Mid-tier IT companies may do better than larger peers, say analysts

The report noted that the major limitations in winning large deals have been overcome by these mid-tier firms in part by hiring talent from larger peers
Mid-tier IT services firms like L&T Infotech (LTI), Mphasis, Mindtree and L&T Technology Services are likely to perform better in the coming quarters as compared to their larger peers, say analysts.

According to industry analysts and brokerage firms, these companies are structurally better-placed to grow at a faster rate than their larger peers such as Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro. The ability to forge partnerships with large technology firms in niche areas and strong leadership are seen as the factors behind these optimistic projections.

“Structural growth for some of the mid-cap companies can exceed that of large-cap firms. We believe smaller IT companies are better positioned to win digital deals as these are smaller in size and scale,” said Yogesh Aggarwal and Vivek Gedda in a HSBC report.

The report noted that the major limitations in winning large deals have been overcome by these mid-tier firms in part by hiring talent from larger peers. “One of the key growth challenges for mid-cap companies has been their inability to win large deals. This is changing now as many are hiring senior talent from larger peers,” the report said.

“Their experience of bidding and managing large deals is, in our view, the single biggest reason for these companies’ potential to consistently grow revenues in double digits in the next few years,” according to 
the report.

For instance, Sanjay Jalona, the chief executive officer of LTI, joined from Infosys, where he used to head the hi-tech and manufacturing vertical. Similarly, LTI’s chief operating officer, Nachiket Deshpande came from Cognizant, where he led delivery for the BFSI (banking, financial services and insurance) vertical.

Debashis Chatterjee, chief executive officer and managing director of Mindtree, joined from Cognizant. Nitin Rakesh, CEO & executive director of Mphasis, used to lead Syntel. And, NIIT Technologies’ CEO Sudhir Singh was the MD of capital markets for Genpact before joining the New Delhi-headquartered firm.

As these leaders have handled portfolios worth more than a billion dollars in their previous stints, this is a clear positive for mid-tier firms.

Apart from strong leadership, partnerships with large technology firms are supplementing the growth prospects of these firms. “As most of the current CEOs of mid-tier firms have come from bigger IT firms, they know the value of partnership in boosting revenue growth. That’s the reason we are seeing increasing partnership in mid-tier IT firms space,” said Pareekh Jain, an outsourcing advisor and founder of Pareekh Consulting. 

Currently, LTI, L&T Technology Services, and Mphasis have partnerships with firms such as Amazon’s AWS, Google Cloud, Salesforce, Cisco, Oracle, and SAP, among others.

“Earlier, big companies had strong relationship with global technology firms. Now, mid-tier companies are following the same model, which puts them in an advantageous condition,” said Jain.



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel