IT Companies Bet on Small-Mid Size Deals to Drive Revenue Large deals have fallen out of favour with end clients due to their tendency to create stickiness, inflexibility, and inefficiency.

In the absence of mega deals, top Indian IT services companies are betting on small- to mid-sized deals to drive revenue growth. Typically, deals with a total contract value (TCV) of USD 500 million and above are considered mega deals while deals with a TCV of below USD 100 million are considered small-mid size deals.

HCLTech won 12 deals worth a TCV of USD 2.1 billion, 7 from services and 5 from software in the December quarter, with small deals growing faster than large deals.

"The average duration of signed deals is getting shorter, which means the tenure of the deals is coming down. The shift towards shorter tenure deals naturally leads to a moderated total contract value, but the more important metric in this context is annual contract value, which is good on an annual basis," C. Vijayakumar, CEO and MD, HCLTech said during the earnings call.

Tata Consultancy Services (TCS) reported USD 10.2 billion worth of deals. Clients with revenue contribution of USD 100 million were up by 3, those with revenue contribution of USD 10 million was up by 17 and those with revenue contribution of USD 5 million were up by 29 on an annual basis. TCS CEO K Krithivasan said during the earnings that deals over USD 20 million saw faster decision-making.

Wipro's deal TCV for Q3 stood at USD 3.5 billion with large deals TCV down 35 per cent QoQ and up 6 per cent YoY at USD 961 million.

"Our large deal bookings are down sequentially, but our TCV bookings are not as down. So, the quantum of small and medium-sized deals has picked up this quarter, which also means our ACV growth was particularly good after several quarters. But it's still one quarter. We'll wait and watch to see if this is a deterministic trend that plays out," said Aparna Iyer, CFO, Wipro.

To be sure, "In overall texture of deals, when we see the pipeline, I think there are quite a few large deals as well, both in terms of cost takeout, vendor consolidation, efficiency led. So, in some sense, the large deal pipeline continues to remain robust," Iyer added.

"A notable uptick in smaller- and medium-sized deals in Q3 aligns with peers' commentary, highlighting the growing momentum of short-cycle deals and signaling a recovery in discretionary spending. Growth was particularly strong in the US BFSI and Healthcare verticals, driven by a gradual recovery in discretionary spending. The company's (Wipro's) focus on client mining and expanding its consulting business has further strengthened its deal pipeline, especially in the Americas," analysts at Motilal Oswal said.

The complex nature of digital transformation deals has led clients to lean more towards smaller deals. "Large deals have fallen out of favour with end clients due to their tendency to create stickiness, inflexibility, and inefficiency. No single provider can meet all the requirements of complex digital transformations, as each brings its own specialization. Clients' digital needs are often fragmented, focusing on solutions for specific business areas. This approach is more manageable and leads to better business outcomes, offering providers opportunities to tap into additional prospects," said DD Mishra, VP Analyst, Gartner.

"Clients are willing to pay a premium for specialized services, but large deals often involve legacy heavy components that demand significant muscle power and offer limited scope to manoeurve from profitability angle. Not all providers can invest in these large, monolithic deals with opportunities to transform over a period, which may also bring their own set of complications," Mishra added.