Mid-sized IT firms are beginning to see light at the end of the tunnel,

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as the order pipeline fills up and deal values

improve. The outlook at MindTree, Patni, Sonata Software

and Subex, among others, is beginning to be cheery as deal flows accelerated in the past two quarters.

Verticals like banking, financial services and insurance (BFSI), healthcare, manufacturing and telecom have begun to yield good returns for some of the companies. Riding on this, MindTree recorded a near 5 per cent growth quarter on quarter after three quarters of sequential decline. Patni, too, saw positive growth sequentially, while Sonata’s net profit rose by 21 per cent even as Subex reduced its losses considerably from Rs 71 crore to Rs 3 crore.

According to MindTree’s chief financial officer, Rostow Ravanan, smaller firms have been able to cut costs more easily and take innovative approaches. “It’s easy to re-orient people to newer activities. For instance, a service

company like ours can use the downturn to create IP when people are underutilised,” he said.

Another advantage to smaller firms is that they are more nimble and react to situations faster. The average size of the deals for mid-sized firms is now going above $1 million, reminding one of the pre-recession phase. The firms refused to name the clients due to the non-disclosure agreement clause.

Patni Computers’ chief executive officer, Jeya Kumar, said, “Our order pipeline is healthy and has almost doubled in the past six months. We have seen several project related discussions moving towards the RFP stage in recent times.”

According to Kumar, there is a multitude of factors leading to better deal flows. “Over the past couple of quarters we have streamlined the business into four regions (US, EMEA, Apac and Saarc) so as to ensure sharp focus on each region.”

“Moreover, our vertical market focus has become more pointed and we’re looking at further investing in and developing areas where we have a presence in. As a result, we will take a deep-dive into sub-verticals and grow our expertise at a micro level,” Kumar said.

Sonata’s managing director, B Ramaswamy, said mid-sized firms have come out of the shadows of the downturn much faster than expected. “Some of the smaller firms have been quick to respond to the challenges and improve operational efficiency by keeping costs down,” he said.

Subex chairman Subash Menon said the order pipeline continued to strengthen over the past two quarters. “Business has stabilised along with order intakes, and the future looks positive,” he said.

But there is still room for more improvement in the environment. Said Rostow Ravanan of MindTree, “Data points are mixed. China and some parts of Asia are doing better, but western economies are still slow. I am not sure how much of the improvement is due to the various stimulus packages, nor whether the recovery would stall if the packages are withdrawn.”

Ravanan also said the big deals were not yet coming in for small firms. “Contracts are getting closed, but ramp- ups are slower than what we used to see in the past,” he said. In other words, $10 million- plus deals are not happening yet.

Patni’s Kumar felt that while the market was stabilising, it would take another three to four quarters of stability for anyone to believe that a true recovery was in the offing.

“The mood is that the worst is over,” says Sonata’s Ramaswamy. “However there is caution and a realisation that the business environment going forward will be very different from what it was pre-recession. Quite a few organisations have started looking at not only the short term but also at long term in view of the new reality,” he said.