Mid-cap IT firms set to outperform larger peers for third straight quarter
Mid-sized IT firms, including LTIMindtree, Coforge, Mphasis, Persistent Systems, and Hexaware, are projected to post 1.2%–6.6% sequential revenue growth in July–September, according to six brokerages.
India’s mid-sized information technology (IT) services firms, those with annual revenues between $1 billion and $5 billion, are expected to outperform their larger peers for a third consecutive quarter, buoyed by strong deal wins and business captured from bigger rivals.
Companies, including LTIMindtree Ltd, Coforge Ltd, Mphasis Ltd, Persistent Systems Ltd, and Hexaware Technologies Ltd, are likely to report a sequential revenue growth between 1.2% and 6.6% in the July-September period, according to at least six brokerages.
Among these firms, Coforge is expected to top the charts on the back of strong deal wins in the travel vertical and quick ramp-up of previous wins. The company’s $120 million annual deal with Texas-based travel technology firm Sabre, its largest to date, has helped sustain growth.
Ninth largest, Persistent, comes a close second and is expected to post a 4.2% sequential growth at best, with experts attributing this to increased business from banks and healthcare centres.
Large caps lag
In contrast, larger peers, including Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd, are expected to grow no more than 2.8%. Of these, the second-largest, Infosys, is expected to perform the best of the pack for the second straight quarter, thanks to deal ramp-ups and increased funding from banks.
“Within IT services, we continue to prefer mid-cap players owing to their better growth vs. the large-cap peers," said Motilal Oswal analysts said in an October note.
“The previous downcycle showed that mid-tier firms can thrive in cost-focused environments. Coforge’s Sabre deal shows mid-tier companies now have both scale and solution maturity to win cost-saving deals. Hexaware, meanwhile, is gaining share through consolidation deals in financial vertical," the Motilal Oswal analysts added.
A second reason for analyst optimism towards mid-caps comes from sustained deal wins including gaining shares against larger peers.
“A few companies with a track record of strong engagements with clients and delivery excellence should continue to gain share. Select mid-tier challengers have aggressively gained share against larger competitors," said Kotak Institutional Equities in a note dated 1 October.
Macro headwinds persist
The optimism around mid-cap IT outsourcers comes despite growing uncertainty in the US, which remains Indian IT’s largest market, accounting for about three-fifths of industry revenue. Lawmakers there have been doubling down on H-1B visa holders and are also considering imposing a 25% offshoring tax on companies that outsource their IT work to homegrown IT services companies.
On 19 September, US President Donald Trump raised the fee for new H-1B visa applications to $100,000 to curb their alleged misuse. Mint had reported on 23 September that about a dozen small and mid-sized IT services companies had called out little to no impact on their operations, as the $100,000 fee on fresh work visas will not materially affect their operations.
However, analysts’ optimism on the company comes on the back of sustained growth for these mid-sized companies. While the tier-1 IT service providers reported 4.3% growth at best, five of the country’s eight companies earning between $1 billion and $5 billion in revenue reported double-digit revenue growth. Coforge ended last year with 31% growth in revenue to $1.47 billion.
Mid-caps have been securing large deal at a time when their larger peers have struggled. LTIMindtree bagged two consecutive large deals. It first bagged a $450 million, seven-year contract with Archer Daniel Midlands, a Chicago-based agri firm.
Most recently, it won a $580 million, multi-year contract with Paramount Global on 6 October, which is its largest contract to date.
A smaller peer was not too far behind.
In March this year, Coforge Ltd won a 13-year deal worth $1.56 billion from Sabre Corp., a Southlake, Texas-based travel technology company. The country’s seventh-largest IT services firm would handle Sabre’s software product delivery and execute AI-led tasks on its behalf. This was the company’s largest deal.
However, large caps are catching up. Early last month, TCS bagged a $640 million deal from Danish insurance firm Tryg, whereas Wipro said it closed two deals valued at $1 billion in the April-June period.
The fourth-largest IT services company also clinched a 10-year contract with UK-based insurance company Phoenix Group, valued at $650 million, in March this year.
TCS, Infosys, HCLTech, Wipro, and Tech Mahindra ended last year with $30.18 billion, $19.28 billion, $13.84 billion, $10.51 billion, and $6.26 billion in revenue last fiscal year, respectively.
- Firms with annual revenues between $1 billion and $5 billion are set to outperform larger peers for the third straight quarter, driven by strong deal wins and automation-led efficiencies.
- Firms including LTIMindtree, Coforge, Mphasis, Persistent Systems, and Hexaware are expected to post 1.2%–6.6% sequential revenue growth in the July–September quarter.
- Larger peers including TCS, Infosys, HCLTech, Wipro, and Tech Mahindra are projected to grow no more than 2.8% sequentially.
- LTIMindtree’s $580 million Paramount Global contract and Coforge’s $1.56 billion Sabre deal highlight mid-caps’ growing scale and capability.
- Despite US policy uncertainty on H-1B visas and a proposed 25% offshoring tax, analysts expect limited near-term impact.
- Mid-tier firms have shown resilience, with five of eight posting double-digit revenue growth last year—Coforge up 31% to $1.47 billion.
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