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Mint
2 days ago
- Business
- Mint
India gets a new No. 7 IT services company as churn continues
Coforge Ltd is now the country's seventh-largest software services outsourcer by revenue as it toppledMphasis Ltd, reflecting the competition and churn in India's mid-sized information technology segment. Noida-based Coforge, formerly NIIT Technologies Ltd, reported $442 million in revenue for the three months ended June 2025, growing 9.6% sequentially. Bengaluru-based Mphasis's revenue rose 1.6% to $437 million during the first quarter. Coforge has jumped three spots in less than a year. It had nudged ahead ofPersistent Systems Ltd in September 2024, and overtookHexaware Technologies Ltd last December. Growth has slowed for Pune-based Persistent and Mphasis due to client and sector-specific concerns. This is the fifth instance of a change in the pecking order in the country's $283-billion IT industry in less than two years, a period also marked by global uncertainties and caution among clients. Many of the changes in Indian IT's revenue ranking involved mid-cap firms. Analysts at Kotak Institutional Equities expect Coforge will break into the top six, which generate at least $1 billion in revenue annually. 'We believe Coforge will exit FY2026, with a revenue run-rate of US$2 bn and on [a] ttm (trailing twelve months) basis by the June 2026 quarter. This is impressive against the backdrop of the industry slowdown where peers are struggling," said Kotak's Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna, in a 25 July note. Mphasis ceded ground to Coforge after losing business from Fedex Corp, which is one of its oldest clients and accounted for 8% of its revenue. The company's revenue from logistics and transportation companies fell by almost half to ₹2,171 million (about $25 million) in the June quarter. The big four of the information technology (IT) services sector include Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd andWipro Ltd, which together account for 26% of the Mahindra Ltd andLTIMindtree Ltd are the fifth and the sixth-largest IT outsourcers. Coforge on a roll At the heart of Coforge's growth is the 13-year software product delivery deal with Sabre, a Texas-based travel tech company with a deal value of $1.56 billion and signed in March this year. The company's revenue also got a big boost from its biggest acquisition in May last year, that of Hyderabad-basedCigniti Technologies,a digital assurance and engineering services company. Coforge acquired a 54% stake in the company for $220 million. Even investors are buying into the Coforge story. Its share price has almost jumped fourfold since May 2017, when Sudhir Singh joined as its chief executive, to ₹1,689.35 on Friday's close. By comparison, the benchmark BSE Sensex rose almost threefold to 81,463.09 points during the period. Still, Coforge has its challenges. For one, there was not much cheer on the profitability front as Coforge's operating margins at 13.1% were largely flat on a sequential basis in the first quarter of FY26. Another concern for the company is its free cash flow, or the cash left after operating expenses and capital expenditure. Coforge spent more money than it earned through its operations as negative free cash flow for the quarter totalled $21.5 million. It is optimistic about a turnaround. 'I would expect quarter 2 also to be an equally robust quarter. And H2, just using that term for a third time, should also be a robust second half for us," said CEO Singh during the company's post-earnings analyst call on 24 July. Mid-cap churn Mid-cap companies stay neck-and-neck by revenue. Mint's April analysis revealed that the revenue gap between the seventh and the twelfth-largest IT outsourcers is about $600 million. Persistent Systems, Hexaware and L&T Technology Services ended the June 2025 quarter with a revenue of $389.7 million, $382.1 million, and $335 million, respectively. At the same time,Sonata Software Ltd overtook L&T Technology Services Ltd to become the country's 11th-largest IT services provider. Firstsource Solutions Ltd could be the latest to enter the Indian IT's $1-billion revenue club. The Billionaire Sanjiv Goenka-owned firm ended the January-March period with $250 million in top line, up 0.4% sequentially. If the company generates at least $250 million each in the rest of the four quarters, it would hit $1 billion in yearly revenue. Firstsource has yet to announce its results for the June first quarter of the current fiscal year. Stability at top While the mid-cap IT has seen frequent churn over recent years, the top order is intact. And it's likely to stay stable for some time as the difference in the quarterly revenue of LTIMindtree and Coforge is now $711 million–or about 60% Coforge's current Q1 revenue. The pecking order at the top has been stable since 2018, when HCL Technologies Ltd overtook Wipro Ltd as the country's third-largest IT outsourcer. Even though the second-largest Infosys Ltd and Nasdaq-listed Cognizant Technology Solutions Corp have been edging past each other, the rankings have not changed materially.
Mint
13-07-2025
- Business
- Mint
As TCS loses shine, investors place hopes on Infosys, HCLTech
Three straight quarters of falling revenues at Tata Consultancy Services Ltd could prompt investors to prefer shares of Infosys Ltd and HCL Technologies Ltd, even as India's largestinformation technology services firm trades at a discount to the other two. The TCS stock is currently trading at 24.6 times the company's forward price-earnings while Infosys and HCLTech, India's second- and third-largest IT services firms, are trading at 25.9 and 36.2 times their earnings, respectively, according to Bloomberg data. TCS last traded at a discount to Infosys in January 2022, and was valued cheaper than HCL Technologies in September 2010. The price-to-earnings (P/E) ratio is arrived at after dividing the current value of a stock by its annual earnings and a key metric to measure how expensive a stock is. TCS shares have declined by more than 20% this year on NSE, while Infosys was down about 15% and HCLTech about 14.5% as of 11 July. The Nifty IT index was down about 13%. 'TCS's edge over peers has reduced in the last several years driven by better execution of peers who have caught up on large/mega deal structuring and digital competencies," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna in a note dated 10 July. 'Competitive intensity has increased with ambitious mid-tier and renewed push from Tier-1," the Kotak analysts added. At the heart of TCS losing its premium to its smaller rivals is the Mumbai-based company's underperformance over the previous three quarters. On 10 July, TCS registered its slowest start to a fiscal year in five years as the company reported its earnings for the April-June quarter. TCS's dollarrevenue in the financial first quarter for 2025-26 slipped 0.59% from the preceding three months, following a 0.98% sequential fall in the January-March quarter and a 1.7% decline in the October-December period. Infosys's revenue declined 4.23% sequentially in the March quarter, after rising 0.92% sequentially in the three months to end-December. HCLTech's revenue fell 1% sequentially in the fourth quarter after growing 2.55% in the third quarter. HCL Technologies will declare its first-quarter earnings on 14 July, and Infosys on 23 July. 'Higher expectations for Infy, HCLTech' TCS, under K. Krithivasan who took charge as chief executive on 1 June 2023, was not able to win enough mega contracts (deals valued at more than $1 billion) in 2024-25 to drive growth, according to analysts. 'TCS last announced a mega deal excluding significant inter-group transactions (such as BSNL and JLR) and Diligenta platform (such as Aviva and NEST) where competition is low, in 2022. From then to now, competition has announced multiple mega deals," the Kotak analysts said in their note. Mint reported on 10 July that while much of TCS's recent growth was driven by Bharat Sanchar Nigam Ltd, the IT outsourcer would not get much revenue from the state-run telecom company in future. BSNL had awarded a $1.83 billion contract to TCS two years ago. As for JLR, or Jaguar Land Rover, TCS in 2023 won an £800-million order from Tata Motors Ltd's British subsidiary to revamp its IT systems. But JLR's declining sales could curb discretionary spending by the company. Abhishek Kumar, equity analyst at JM Financial, said investors' bets on Infosys and HCLTech were on account of the companies' better growth in the previous two years and higher growth prospects. 'The premium is a reflection of investors' higher growth expectations for HCLTech and Infosys versus TCS," said Kumar. TCS's revenue grew 3.78% in 2024-25, slower than Infosys's 3.85% and HCL Technologies's 4.3% pace. In FY24, TCS's 4.1% revenue growth lagged HCLTech's 5.4% but was better than Infosys's 1.9%. Natarajan Chandrasekaran, chair of Tata Sons, which owns 71.77% in TCS, recognising TCS's challenges, recently appointed two Tata Group executives to assist Krithivasan in steering the company. On 10 April, Aarthi Subramanian was appointed TCS's chief operating officer, and Mangesh Sathe as chief strategy officer. 'Growth remains elusive for TCS' Investors in Indian IT services companies are also taking cues from uncertainties caused by the rapid adoption of generative artificial intelligence (Gen AI) across industries and smaller IT companies being able to strike competitive large deals. In TCS's annual report for FY25, Krithivasan said clients were increasingly shifting focus from a use case-based approach to return on investment-led scaling of AI, and that the appointments of Subramanian and Sathe were driven by 'the industry shifts led by AI". However, Motilal Oswal analysts said 'growth for TCS remains elusive". 'It is now clear that productivity benefits are being promised as a part of most deals, potentially dragging future revenues for the (IT) industry. In most tech cycles, however, a declining legacy business is offset by a growing new-age business. This kicker is missing in this cycle, putting further pressure on growth," Motilal Oswal analysts Abhishek Pathak, Keval Bhagat and Tushar Dhonde wrote in a note dated 10 July. TCS ended June with an operating margin of 24.5%, higher than Infosys's 21% and HCLTech's 17.9%. The company ended Friday, 11 July, with a market capitalisation of $137.6 billion, making it India's most-valued IT services firm. Infosys and HCLTech are valued at about $77.2 billion and $51.7 billion, respectively. JM Financial's Kumar expects a reversal in the valuation disconnect among the country's three largest IT services firms. 'Deal wins are far more consistent for TCS as compared with peers and the discount should go away once macroeconomic uncertainties lift and growth converges," said Kumar. TCS reported an order book with a total contract value of $9.4 billion for the first quarter of 2025-26, up 13% from the corresponding year-ago period.
Mint
09-07-2025
- Business
- Mint
Coforge emulates Cognizant, Infosys in on-site consulting push to fuel growth
Coforge Ltd, formerly NIIT Technologies, is taking a leaf out of Cognizant Technology Solutions Corp and Infosys Ltd's proven business strategy, as the information technology (IT) services company looks to emerge as a larger industry player in the coming years. Coforge, the country's seventh-largest information technology (IT) services company, is now placing business consultants at client locations to mine more business from its largest customers, analysts said. The Noida-based company's decision to place consultants with clients comes at a time when non-essential tech spending has dwindled. 'Companies have to be proactive in shaping opportunities with clients. Coforge distinguishes itself through its solutions team, composed not of traditional delivery personnel but of business experts with consulting backgrounds, often embedded at client locations," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna in a note dated 26 June. Also read | Coforge's turnaround story is one for the books. But what now? 'These teams conduct iterative workshops to deeply understand the client's business challenges, existing tools, and operational processes before crafting tailored solutions. This approach enables Coforge to drive proactive large deals rather than waiting for RFPs (request for proposals)," said the Kotak analysts from their discussions with Coforge's management. However, this is not new. IT outsourcers have previously hired top business consultants to identify new work in their clients' businesses that could lead to incremental revenue. Both Cognizant and Infosys had embarked on a similar practice about two decades ago when they started their consulting practice. At one point, Cognizant was among the biggest recruiters from business schools. According to a July 2014 report by the Economic Times, the Nasdaq-listed company had one MBA graduate for every 20-25 tech professionals. It hired over 500 MBA graduates in 2014 across business schools in India, North America, Europe and APAC and over 200 such professionals in the preceding three years. Peer Infosys had also embarked on a similar venture when it launched its own consulting business. 'We have taken a somewhat unconventional approach to build our consulting capabilities. Having witnessed numerous failed mergers and acquisitions in the industry, we are instead assembling a dream team of top consultants from all the major firms," said S Gopalakrishnan, who was then the chairperson of Infosys Consulting, in a press release dated 8 April 2004. Also read | Coforge secures $1.56 billion contract from US-based travel tech firm Sabre Both Cognizant and Infosys hired business consultants, because both worked with domain experts who helped them win contracts beyond traditional IT servicing. This was also the beginning of the social, mobile, analytics, consulting, and internet of things (SMACI) revolutions when new technologies were emerging. This helped Cognizant more than anyone else. Under former chief executive Francisco D'Souza, the software services company outperformed its peers to clock a revenue of $14.81 billion in 2017 from just about $1.42 billion in 2006. Significant challenge Coforge aims to top $2 billion in revenue by FY27, though its efforts to secure more client business face a significant challenge in competing with the top five IT firms. TCS, Infosys, HCLTech, Wipro, and Tech Mahindra are the country's top five IT firms by revenue. In its response to Mint's queries, Coforge said it had set up its Consulting and Solutioning division nearly eight years back. 'We were also one of the first to invest material dollars in building exceptional industry functional expertise in very select sub-segments, including Speciality Insurance, Capital Markets Buy-side and Airlines. That group of functional consultants, hired eight years back, has grown materially and continues to have a significant percentage located onsite," said Coforge in a response to Mint's email on 5 July. Also read | Coforge's $1.56 bn Sabre deal win sparks fresh optimism in a shaky IT sector According to the company, the Consulting and Solutioning team includes members with business backgrounds in North America and Europe. However, hiring and deploying these professionals has not been easy as these are MBA graduates and business consultants who come with hefty paycheques. The company's profitability has been under pressure and has been declining since FY22 to 13% at the end of last fiscal. A second analyst said that an integrated consulting practice was handy in improving the IT outsourcer's relations with the client. 'An integrated consulting practice helps IT companies in three key ways—graduate from a vendor to a trusted partner, advising the client on their growth journey every step of the way; shape deals rather than merely participate in RFPs (request for proposals), and in many cases, sole-source these deals by getting ahead of the curve," said Ramkumar Ramamoorthy, partner at Catalincs, a tech advisory firm. He said that the consulting practice helps IT outsourcers nurture the long-term strategies of the client, which indirectly helps grow relationships from 'tens-of-million-dollars to hundreds-of-million dollars." Aided by acquisition Coforge ended FY25 with $1.47 billion in revenue, up 31.2% on a yearly basis. Much of it was on the back of Cigniti, the Hyderabad-based engineering services company that it bought last May, in its biggest acquisition. The company's move to mine clients comes as two of its peers are actively hunting deals through such efforts, according to a Mint report on 11 June. Cognizant's Americas president, Surya Gummadi, said his company bagged two large deals through its mining efforts, fetching upwards of $500 million in revenue. He added that both deals came after Cognizant passed on artificial intelligence (AI)-led productivity gains to clients, leading to additional investments in IT work. 'Both the mega deals that I spoke about, they were originated by us, they did not come from an RFP," said Gummadi, adding that 'the ideas originated from us." Cognizant ended last year with $19.74 billion in revenue, up 1.98% year-on-year. Also read | Coforge to acquire Cigniti Technologies' 54% stake at ₹1,415 per share Smaller peer Zensar Technologies Ltd's management expressed a similar view, where chief executive Manish Tandon said the pipeline of large deals the company created was better than the pipeline that came from the clients' side. Ramamoorthy said that this was the perfect time to increase consulting investments. 'Consulting capability comes in very handy especially when businesses are buffeted by structural shifts in technology and business. What we are witnessing today is a perfect time to double down on investments in consulting to address challenges arising from rapid technology change, geo-political instability, enhanced tariffs and regulations, and changing customer behaviour," said Ramamoorthy. Also read | Coforge eyes 4x growth in 4 years, as stock crashes 10% in a day
Mint
02-07-2025
- Business
- Mint
Mid-cap IT companies set to outpace larger peers in Q1
India's mid-sized IT services firms, with annual revenues between $1 billion and $5 billion, are expected to outgrow their larger peers in the first quarter of FY26, driven by large deal wins, limited exposure to tariff-hit sectors, and better adoption of Gen AI. Companies, including LTIMindtree Ltd, Mphasis Ltd, Coforge Ltd, Persistent Systems Ltd, and Hexaware Technologies Ltd, are expected to report a sequential revenue growth between 0.6% and 9% for the three months ended June, according to at least five brokerages. In contrast, larger players like Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, and Tech Mahindra are expected to grow around 3.5%. Wipro is likely to report up to a 2.5% decline due to weak European demand and subdued client spending. Infosys is expected to outperform its top peers. Coforge is expected to lead the midcap pack, buoyed by its $120-million annual contract with Sabre Corp., signed in March. Persistent Systems is projected to post 4.1% sequential growth, Kotak Institutional Equities said in a 30 June note. 'We believe that the quarter will be a mixed one, with mid-tier IT services companies reporting strong growth, while large IT companies and ERD (engineering, research and development) names will disappoint," said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna. 'Smart deal structuring, share gains and favorable portfolio (low manufacturing exposure) will drive strong growth for mid-tier, with Coforge (+6.4% qoq) and PSYS (+4.1% qoq) leading the way," said the Kotak analysts. PSYS refers to Persistent Systems. Mid-caps capitalised on their ability to shape large deals and get higher revenue from banks and financial institutions. 'Key reasons for this outperformance of mid-caps vs. large-caps include: 1) the ability to proactively shape large deals and quickly tap into high-growth areas; and 2) a larger revenue share from the BFSI vertical, which seemingly is not as singed by the tariff-led macro friction," said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a note dated 1 July. Building momentum Analysts' optimism in mid-cap tech service providers comes on the back of stronger performance last fiscal year. Five of the country's eight mid-caps earning between $1 billion and $5 billion reported double-digit revenue growth last year, led by Coforge, which reported a 31% jump in revenue. This was in contrast to the top five, which reported a growth of 4.3% at best. Mid-cap companies scored big on deals wins, which eluded their larger peers in FY25. LTIMindtree landed its largest contract with US-based food processing and commodities trading company Archer-Daniels-Midland Co. (ADM) in May, while Coforge secured the Sabre deal in March. Leadership stability has further helped the mid-caps shine. CEOs at Coforge, Persistent, and Hexaware have each been in their roles for over five years, having previously worked at larger peers they now outperform. In contrast, TCS, Wipro, and Tech Mahindra have all seen recent leadership changes, with new CEOs serving for less than two years. Faster integration of GenAI is also giving mid-caps an edge. As reported by Mint on 7 May, these firms are more adept at embedding GenAI into services agile teams and better ability to change their business processes to clients' needs. Meanwhile, engineering R&D firms are bracing for a challenging quarter. At least two brokerages expect each of the ER&D firms including L&T Technology Services Ltd, Cyient DET, KPIT Technologies Ltd, Tata Elxsi Ltd, and Tata Technologies Ltd, to report a sequential revenue decline. These companies rely on business from carmakers. 'Auto ER&D are likely to face the brunt of tariff-led pauses," said JM Financial analysts Abhishek Kumar, Nandan Arekal, and Anushree Rastogi, in a note dated 30 June. The analysts added that these companies reflected 'elevated levels of uncertainty in their demand outlook." A tariff war sparked by US President Donald Trump has impacted companies and supply chains across sectors. Higher tariffs have made it tougher for companies, including car makers, to source raw materials for their businesses. A double whammy for global carmakers comes from cheaper Chinese vehicles, which are eating their market share.
Business Insider
29-06-2025
- Business
- Business Insider
Coforge Limited (COFORGE): New Buy Recommendation for This Technology Giant
Kotak Mahindra analyst Kawaljeet Saluja maintained a Buy rating on Coforge Limited (COFORGE – Research Report) on June 27 and set a price target of INR2,100.00. The company's shares closed last Friday at INR1,899.50. Don't Miss TipRanks' Half Year Sale Take advantage of TipRanks Premium for 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. Make smarter investment decisions with TipRanks' Smart Investor Picks, delivered to your inbox every week. According to TipRanks, Saluja is ranked #4811 out of 9622 analysts. Coforge Limited has an analyst consensus of Strong Buy, with a price target consensus of INR8,855.71. The company has a one-year high of INR2,003.59 and a one-year low of INR1,085.81. Currently, Coforge Limited has an average volume of 120.9K.
