IT midcaps’ focus on sales reaps dividend
Midsize IT firms had a good run in the June quarter of FY19, backed by stronger deal wins, reflecting that the investment that these companies had made in recent years, in reinvigorating their sales engines, are starting to pay dividends. Industry experts say that the availability of a large number of smaller size deals and their push towards European markets also aided midcaps such as Mphasis, Mindtree and Persistent to clinch many of those.
Mphasis, the Blackstone-owned IT services company, for example, announced deals with total contract value (TCV) worth $153 million in the June quarter, a jump of 32 per cent over the preceding quarter. The Bengaluru-headquartered firm said its focus on rationalising the sales channels earlier in the year across specific geographies and segments, especially in Europe, is now starting to pay off.
Similarly, L&T Infotech (LTI), which reported 30 per cent growth in revenues on year-on-year basis, added four large clients in the quarter in the $5-20 million range. The company also announced a large deal with a Global Fortune 100 consumer and pharmaceutical giant. “The deal sizes and duration have shrunk now, which cater very well to a company of our size. Our nearterm revenue growth is powered by effective client mining, large deal wins and targeted new account openings,” said Sanjay Jalona, CEO and MD of LTI.
Pune based Zensar Technologies added nine clients during the quarter in the $1 million-plus category, one in the $5 million range and another in the $10 million range. According to CEO Sandeep Kishore, the company has been winning clients from larger competitors leading to building a strong pipeline of deals.
“Earlier, the deal sizes in the market were such that it was difficult for midcaps to bid for them due to the size of investments required. Lately, we are seeing a large number of deals even from tier-I companies in the $50 million range, which means that large cap and midcap IT players are competing for the same pie," said Amit Chandra, analyst at HDFC Securities. “This has resulted in the likes of Zensar, Mphasis, LTI and LTTS posting good growth over the past few quarters.”
Chandra also added that these companies LTI Mphasis Mindtree Four new clients in $5-20 mn category, $50 million-plus net new TCV
$153 million worth of TCV $306 million worth of TCV have made strategic investments in their sales teams to complement this opportunity, which has yielded results.
A report by Kotak Securities also noted that the mid-tier IT firms impressed with their growth rates, with Mindtree and L&T Infotech hitting more than 20 per cent growth in year-on-year terms. Even other midcap companies such as Hexaware, NIIT Technologies and L&T Technology Services delivered impressive growth rates. “Factors helping growth rates (for midcaps) are market share gains amid robust spending by top clients." Besides, factors like lesser drags from legacy business and pick-up in deal flow are also helping these companies.
Pune-headquartered Persistent Systems, which added five clients in the $1-3 million range during the quarter, said that a greater focus on selling solutions to their clients, as well as a Europe-focused sales approach is helping the company. Chief Executive officer Anand Deshpande said that going forward the company would increase its spending on strengthening the sales channel further.