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Strategy, focus play out for mid-cap IT companies

Shivani Shinde Nadhe / Pune 01 Nov 16 | 12:30 AM

The second-quarter results for mid-cap information technology companies were varied.

At one end was Bengaluru-based Mindtree, which reported numbers lower than expected, with revenue declining almost three per cent. On the other end, Hexaware surprised the Street with top line growth of four per cent on a sequential basis in rupee terms and almost five per cent in dollar terms.

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Persistent Systems had a soft second quarter this year, due to the cyclical nature of its business. The firm said subsequent quarters would be better. Mid-cap infotech firms cannot be compared the way the top four service players can be because each of these has charted out its own strategy and has a niche offering.

Mindtree follows the large-cap players and the pressure on Tata Consultancy Services (TCS), Infosys and Wipro is also evident on Mindtree's numbers. The firm said slower ramp-ups and volatile macroeconomics impacted the quarter's performance. Mindtree's second-quarter numbers were also affected by slow decision making in signing digital deals. "Pricing pressures have definitely not become worse. IT teams across clients have flat budgets and have to derive savings from traditional services," said Rostov Ravanan, chief executive, Mindtree, during the firm's earnings call. On the other hand, Hexaware managed to outperform estimates and expectations even with an exposure of over 40 per cent to financial services. "Our financial services business grew 8.6 per cent this quarter. Our focus in financial services is more on capital markets whereas traditional IT players have focused on the banking segment and retail," said R Srikrishna, executive director, Hexaware Technologies.

Pune-headquartered Persistent Systems, though reporting soft second-quarter numbers, will fare better in the second half of the financial year because of its digital business, according to analysts.

"Persistent is well placed to leverage increasing enterprise digital transformation budgets of clients in, while intellectual property revenue growth will drive margins," said a note by Reliance Securities.

Anand Deshpande, chairman and CEO, Persistent Systems, said, "Digital is a platform and architecture that allows you to create agility in business by building things incrementally and iteratively." What is also going in favour of Persistent is its ability to increase prices by three per cent, year on year.

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