India’s mid-tier IT firms may see 50-60 per cent drop in revenue

BENGALURU: India’s  mid size IT companies are set to report a 50-60 per cent revenue drop in the first two quarters of FY21 on the back of deferred client payments, deal withdrawals, unsustainable work from home norms and client concentration across impacted verticals. The revival in the revenue growth, experts say, is expected only in the financial year 2022.

“Large companies tend to be more resilient to external crises compared to smaller firms. Benefits from economies of scale, diversified client and supplier base, less concentrated risk profiles and better access to funding help large companies minimize impact of adverse conditions on business,” Kotak Institutional Equities said in a research note.

More exposure towards the verticals like travel, transportation , high-end retail, hospitality across countries like US, UK from where the mid-size companies garner nearly 50 per cent of their revenues has led to sharper decline in their profits.

The July quarter is infact seen as the most crucial since the companies will have to function at 50 per cent lesser operating revenue which could determine their financial health for FY21. Kotak Institutional Equities, for instance, has cut its revenue forecasts for FY21 sharply for all the major midsized firms like TechM, Hexaware, Mindtree,MPHasis and L&T Infotech.

“The true impact on the next fiscal will be seen in the July quarter since it is a question of these mid-size companies now sustaining themselves the storm when the the new businesses have stopped coming and the clients are re-negotiating the deals thus impacting the revenues of the tierII companies. A large chunk of tech-backed start-ups which constituted this segment do not have enough funds left now and will be hit most,” Kavita Vishwanath, GM, JFrog India, global software firm told the TNIE.

However, the top five IT services firm including TCS, Infosys, HCL Tech, Wipro amay be able to weather the storm even as the rating agencies such as ICRA and Gartner have cut their revenue growth forecasts by 3-5 per cent for FY21 due to Coronavirus disruption in the US and UK which account for 80 per cent of their revenue.