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Mid-cap IT firms' niche focus gains traction among clients

Shivani Shinde  |  Mumbai 

The niche and differentiated focus that some of the mid-cap information (IT) services companies have embarked on, seems to be paying off.

Some of the recent wins by mid-cap IT firms elucidate the point. Hexaware Technologies signed a $177 million (Rs 796.5 crore) contract for five years from an existing US-based client. This is one of the largest deal for the company so far. In the last 12 months the company signed five deals upwards of $10-15 million ( Rs 45 to 67 crore) range.

Delhi-based NIIT Technologies signed two deals, the size of which has been more than what it traditionally signs up for. The company has entered into a joint venture with US-based Morris Communications for five years, which will ensure revenues of $85 million (Rs 382.5 crore). It has also signed an estimated $40 million (Rs 180 crore) deal with Eurostar International.

  • Mid-cap IT firms such as Hexaware Technologies and NIIT Technologies are focusing on specialisation and looking at existing clients to grow
  • Hexaware Technologies signs a '796.5-crore ($177-million ) contract with an existing US-based client
  • NIIT Technologies focuses on travel and transport and media, wins Eurostar deal despite competition from 35 global vendors

The significance of bagging these deals at this juncture is crucial as the IT outsourcing market is battling concerns of global economic uncertainties such as Europe's financial crisis and unemployment in the US.

For Arvind Thakur, the chief executive officer of NIIT Technologies, it is all about focus and specialisation. “We managed to win the Eurostar deal despite having competition from 35 global vendors. These also included large multi-nationals from Europe. But more importantly, this validates our focus on the non-linear initiative that we start some time back,” he said. As a focus area, NIIT Technologies has travel and transport and media as its focus.

The focus is also evident in the company’s first quarter results, that ended June 30, as it signed five clients in the travel and transport vertical.

“Mid-cap players have realised they cannot compete with the large players. The only way they can survive is by building niche capabilities. Some of the deal wins point to that trend,” said Sathish Nanu, director, QS Advisory.

Similar is the case with Hexaware. The company recently transformed its horizontal led sales into vertical sale approach. With a clear intention to mine existing clients better. This is evident in the deal wins, which includes the recently signed $177 million deal from an exiting client in the US and a $110-million deal that it signed last year. The company also managed to get a $25 million extension from an existing client from Europe.

“I thinking wining some large deals is making customers to look at us differently. The change is also evident in our work, which we have handled maturedly,” said P R Chandrasekar, CEO and vice-chairman, Hexaware Technologies.

According to a report by Edelweiss India Equity Research, the demand in niche areas (HR-IT, Peoplesoft and Testing) where Hexaware has a strong foothold, is healthy while business intelligence and infrastructure management services are emerging as strong service areas for the company, giving it incremental share with existing clients.

Analysts tracking the sector point out that while the some of the players have realised the importance of differentiation, from a client perspective it is also about the flexibility and convenience that some of these firms give.

Pune-based KPIT Cummins has been banking on its manufacturing expertise. The company that developed for a plug-in parallel hybrid solution for automobile has entered into a joint venture with Bharat Forge to manufacture it.

However, Amneet Singh, vice-president, Everest Group, believes that mid-cap players do tend to be a little more aggressive. “But what matters is that these deals are coming due to the focus that these firms have chosen for themselves. This is important, especially as large-cap companies too are eyeing the same deal pie,” he said.

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First Published: Wed, July 20 2011. 00:00 IST