Consolidation to Gather Pace Among Tier 11 Indian Technology Firms

CRISIL expects consolidation among Tier II1 information technology (IT) services firms (annual revenues of Rs 1,000-10,000 crore) to gather pace over the medium term as they strive to achieve scale and build digital capabilities to stay relevant.

This comes at a time when their legacy businesses – such as time and material contracts – have already become commoditised, posing significant growth and profitability challenges.

Another trend that’s also being witnessed is the exit of promoters of Tier II firms, capitalising on higher valuations in the past two years and better growth prospects.

CRISIL’s analysis of the top 22 listed IT service firms shows there is a potential consolidation opportunity among Tier II firms, which today have a combined market capitalisation of ~Rs 33,000 crore. Pertinently, consolidation moves worth Rs.18000 crore are already in progress among Tier II firms.

Such consolidation engenders manifold synergies, boosts profitability and builds capabilities to cope up with opportunities in the digital space.