The Hindu Business Line : Mid-size IT cos stay insulated from sub-prime heat for now

Chennai, March 14 While large IT companies have signalled caution in second-guessing customers’ views on IT budgets for the forthcoming quarters and admitted to deals being delayed, small and mid-sized IT/ITES companies are yet to see an impact of the US economic slowdown on their revenues.

Their focus on niche segments and their relatively lesser focus on the US markets have so far diverted any darts of sharp pain that the slowing US economy could have inflicted on them.

Take for example, Mastek Ltd. It derives a majority of its revenues from the UK (For the quarter ended December 2007, Europe contributed about 68 per cent of its revenues). Mr R.S. Desikan, Group Chief Financial Officer , Mastek, said “We do not see any slowdown as we are active only in the credit insurance, and not life insurance space.”

Mr Kishor Patil, Chief Executive Officer & Managing Director, KPIT Cummins, noted that out of say ten clients, across industries, there were significant increases in IT budgets for about six of them, while a couple of them may see a softening of budgets. On the automotive sector, he said, “There is no question of cutback on spending as clients have already laid out a 2-3 year road map for new products.”

Niche areas

According to a senior IT analyst, most small- and mid-sized companies have greater exposure in Europe and in the Middle East than they do in the US, vis-À-vis their large counterparts, especially in the finance vertical. “Large companies have typically grown on the strength of their exposure to the US markets, particularly the financial sector. Not so for the small companies that have worked in sectors such as airlines and hospitality that have global presence,” he told Business Line.

Cybernet-SlashSupport, which works in areas that are operations-led such as infrastructure management support and technology support and not capital expenditure-led expenses, sees no roadblock to outsourcing. “In recent quarters, we have not seen a reduction in our clients’ IT investments. Nor has there been any cancellation or postponement of deals we have won,” said Mr Shiva Ramani, Co-Founder and Chief Executive Officer.

Maveric Systems, an independent software testing provider with a majority of revenues from Europe and Middle East, is in fact confident of growing its US business revenues to 17 per cent (of total revenues) next fiscal from the current 10 per cent, Mr Ranga Reddy, Chief Executive Officer, said.

Optimism not shared

However, the optimism is not widely shared. Many feel it is only a matter of time before effects of the slowdown catches up with them. According to the Nasscom Chairman, Mr Lakshmi Narayanan, also Vice-Chairman of Cognizant Technology Solutions, “Typically it is the big firms that get affected first. The effects take longer to reach the small firms and this might be the case now,” he told Business Line.

Mr Bharat Varadachari, Partner, Global Tax Advisory Services, Technology, Ernst & Young, felt SMEs were not insulated from recessionary trends. He said, “A large proportion of them are engaged in low value-low margin business. Also, they may not have structured their deals as intelligently as the larger IT .”

Mr Rusi Brij, Vice-Chairman & Chief Executive Officer, Hexaware Technologies Ltd, said IT budgets of clients whose financial year began in April or July were likely to see a more challenging period ahead.

With inputs from Adith Charlie and K. Bharat Kumar