Decline in attrition: Check.
Net addition of employees: Check.
Sequential Increase in Transaction Pipeline: Check
These are some of the key metrics that have industry insiders and analysts backing the idea that midsize companies are outperforming their biggest rivals in the $227 billion information technology services sector. dollars.
It sets up the smaller ones nicely at a time when industry watchers are worried about whether IT customers would cut spending on digital services amid forecasts of a global recession.
“Net hires (for mid-sized companies) are better than larger peers. Recruitment has been good in the last quarter and they plan to hire more people in the next quarter. Given the sectors and niches in which these players operate, they have yet to see an impact (from the slowdown),” said Pareekh Jain, IT expert and founder of Pareekh Consulting.
“The backlog of most mid-tier companies has not declined compared to the decline in backlog of all Tier I companies on a sequential basis. Additionally, the mid-tiers appear to be managing the attrition,” Jain pointed out.
During the April-June period, Mindtree’s net number of employee additions remained solid at 4,700, with a plan to hire 5,000 new employees this year. It also announced its highest backlog of $570 million. Similarly, L&T Infotech added 2,118 net people in the first quarter compared to an average of 2,600 over the last four quarters.
Among engineering services companies, Tata Elxsi revealed the most optimistic hiring outlook. It planned to grow its workforce to 15,000 in FY23, up from its current headcount of 10,000 employees.
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L&T Technology Services expected to hire approximately 3,000 new engineering graduates this fiscal year. During the first quarter, Persistent Systems added 3,000 employees and announced its highest ever total contract value of $394 million. Persistent Systems and L&T Technology Services are on track to hit $1 billion in annual revenue in the current fiscal year.
Lower exposure to Europe and less reliance on large deals could also bode well for mid-sized companies in the future.
Unlike industry giants, most midsize companies focus on securing multiple short-term digital deals rather than large, transformational deals. As any slowdown hurts big deals, mid-sized companies are likely to be immune to these risks.
“Europe contributes less in terms of revenue for most medium-sized companies. Thus, they benefit from the strengthening of the dollar against the rupee against the major peers. Also, when it comes to big deals, mid-sized companies don’t play much into it,” Jain said.
Strengths and weaknesses
Despite fears of a slowdown and all the talk of the recession, most midsize companies have announced strong revenue prospects for the current fiscal year.
So what helps them?
Midsize businesses have been working hard lately to improve their agility. They also offer more specialized services and focus on the areas that matter. This, in turn, makes more international customers appreciate them.
“When we look at the demand for digital services, it continues to be strong. Additionally, we are seeing sequential growth across all of our existing customers,” said Venkatraman Narayanan, Managing Director and Chief Financial Officer of Happiest Minds Technologies, which also raised its annual revenue outlook to 25% from 20% previously.
Coforge is another medium-sized company that has raised its revenue forecast.
Of course, midsize IT companies also face challenges.
“Currently these companies are doing well, but things can change very quickly,” said a recruitment expert who did not want to be quoted for fear of losing clients. “We have seen in a recession, mid-sized companies generally face higher risks due to customer concentration and increased reliance on certain verticals. So pockets of weakness can derail the growth story.