With global market forces and slower decision-making dragging down revenue growth for IT bigwigs, analysts are now looking at mid-cap technology firms as a safer bet. After the quarter ended March, markets have their sights set on mid-tier firms, some of whom have delivered the best revenue growth rates in the sector for the year.
Amongst them, Hexaware Technologies and KPIT Cummins InfoSystems are being seen as clear winners, outdoing top-tier counterparts in volume and revenue growth. Hexaware volumes grew at 6.6%, in contrast to Wipro which grew at 0.8%, and Infosys which reported a 1.5% decline. Mid-tier firms expect FY2013 growth to beat the Nasscom guidance of 11-14%, while the likes of Infosys expect close to 8%.
?There is a sense in the market that mid-cap IT companies are a better bet than larger ones,? said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.
?In the quarter ended March, mid-caps delivered stronger growth rates, and the impact of the slowdown on them was less, as their markets typically have lower levels of competition, and do not have a lot of exposure to large clients,? he added.
Revenue for KPIT Cummins grew at a whopping 27% in rupee terms to R480 crore quarter-on-quarter, resulting from a $13 million revenue inflow through the acquisition of technology services firm Systime Global Solutions earlier this year. Markets have been especially encouraged by the firm?s guidance.
Dollar revenue for fiscal 2013 is projected to grow at 32-35%, which is thrice as much as the expected industry average.
Hexaware also delivered one of the highest volume growths in the industry, at 6.6% quarter-on-quarter, while revenue grew by 1.5% to R438 crore.
According to a research note from Angel Broking, the company has been outperforming in the mid-cap space for the past eight quarters by reporting 7.7% compounded quarterly growth rate; and its management has been outpacing guidance every quarter. The firm signed two deals during the fourth quarter, each worth $10 million, and the management indicated that it is in the final stages of signing two large deals, each worth $25 million.
?What is working in Hexaware?s favour is a strong order book and the pipeline looks very strong. For KPIT Cummins, there has been a spend revision in key client accounts,? said Sanjeev Hota, assistant vice-president (IT research) Sharekhan Financial Services.
Even MindTree, which has not had the best of performances in the past few quarters due to extensive management reshuffles, has picked up, meeting market projections. It reported revenue growth of 1.3% q-o-q to $105 million. Volume growth was strong at 4.9% sequentially. In rupee terms, revenue came in at R526 crore, up 1.2% q-o-q. Analysts at Angel Broking called this performance ?modest, but ahead of expectations,? and projected it to post average industry growth figures for the current fiscal.
The lower rungs of mid-caps was filled by firms like Mindtek, which reported somewhat disappointing numbers, with a loss of R1.41 crore, against a profit of R0.02 crore in the corresponding quarter last year. Revenues stood at R57.74 crores against R51.46 crores a year ago. Tech Mahindra, which is yet to declare earnings, is expected to record a 2% revenue decline. Amongst top-tiers, TCS recorded a jump of 0.4% in revenue, as opposed to Infosys? fall of 4.8%, HCL Technologies? decline of 0.5% and Wipro?s fall of 1.3%.