September 25, 2005
IT's Tier-II Blues
Then: It is a fact that most of the mid-size IT companies have been quoting at 13 to 14 times earnings, compared to 32 and 33 multiples of the big IT companies such as Infosys and Wipro. Their growth is also not likely to be more than 20-30 per cent in the near future, compared to the 50-60 per cent rate expected of tier-I companies.
So the question is, where is MphasiS and others of its ilk, such as Polaris, Hexaware, Subex, Sasken, iGate, Patni and Mastek headed? With revenues ranging between $200 million and $500 million (Rs 880 crore andRs 2,200 crore), how many of them will make it to IT's billion-dollar league and how soon, and what happens to those that are not growing fast enough?
Talk to analysts on Dalal Street, and you will hear mixed opinions on the prospects of such companies. There is, however, unanimity on two issues. One, that they will need a well-defined and differentiated positioning against tier-I players and, two, they will need diversification and a stronger focus on product development. "As business pitches get crowded with top (five or six) IT vendors (who, according to Nasscom, account for almost half of the industry revenues) also competing for the space that mid-size IT companies operate in, the latter will have to review their survival tactics," says Partha Iyengar, Vice President (Research) at IT consulting and research firm Gartner. Another route, analysts say, that companies need to explore is that of newer markets.
Now: The challenges remain the same for mid-size IT companies. Infosys and TCS continue to be the IT bellwether stocks on Dalal Street, with well spread out businesses geographically offering end-to-end solutions. The mid-size pack has a lot of catching up to do.