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Economic Times
2 days ago
- Business
- Economic Times
Not just TCS: Q1 results destroy midcap IT's last standing heroes
The darling status of India's midcap IT companies is evaporating faster than their stock prices, as investors who fled largecap IT bellwethers for supposedly safer harbors discover there's nowhere to hide in the sector's brutal downturn. While Tata Consultancy Services (TCS) has grabbed headlines with its 12,000-employee layoff plan and share prices being down one-third from peak, the once high-flying midcap IT stocks, previously shielded by their growth engine reputation, are also nosediving. ADVERTISEMENT The Q1 earnings season proved to be a tough one for mid-tier IT companies, with most reporting topline misses that sent investors scrambling for the exits. Having lost about 10% in a week, Persistent shares are in bear grip and down about 24% from peak. Coforge shares have also lost about 7% of its value in the last one week alone. "Q1 results triggered a sharp stock correction for most of the mid-tier IT companies," said HSBC India's Yogesh Aggarwal. "Every company print was interesting, with some idiosyncratic take-away." The grim reality: even companies posting what appeared to be decent numbers couldn't escape punishment. Mphasis "finally reported a sharp decline in its top logistic client" but somehow also delivered "strong growth and extremely strong deal wins". Also Read | Trent, TCS shares worst Nifty performers in 2025. Why 2 Tata stocks are down at least 25% this year Capital intensity is spiking across midcap IT as companies leverage their balance sheets to win fixed-price contracts. Coforge sits at the epicenter of this debate, with its free cash flow to revenue conversion averaging a mediocre 5% in recent quarters. ADVERTISEMENT "Most companies are leveraging their balance sheets to offer better terms for fixed-price contracts," Aggarwal warned, highlighting how desperate the competition has cash conversion crisis isn't isolated to Coforge. Persistent has seen similar increases in contract assets leading to weaker cash conversion, while even Mphasis reported the troubling trend in Q1. ADVERTISEMENT Also Read | Explained: Why TCS firing 12,000 employees may be a canary in the mine and what it means for investors Despite the carnage, some analysts are doubling down on beaten-down names. Jefferies upgraded Mphasis to BUY, arguing that "the key overhang in logistics vertical is behind" and raising their price target to Rs3,100 based on "an improving growth outlook." ADVERTISEMENT For Coforge, Jefferies maintained its BUY rating with a raised price target of Rs2,030, expecting the company to deliver 23% EPS CAGR over FY26-28 despite current Vinit Bolinjkar, Head of Research at Ventura Securities, struck a more cautious tone: "The Q1 FY26 earnings season proved challenging for midcap IT companies in India, despite initial investor preference for them over large-cap IT firms." ADVERTISEMENT The pain isn't just domestic. Weak discretionary spending as clients in the US and Europe delay IT projects amid trade and inflation uncertainties is crushing revenue conversion. "Deal pipelines remained robust, their conversion into revenue was slow, particularly impacting sectors like manufacturing, auto, and consumer packaged goods," Bolinjkar explained.A notable trend this quarter was the role of cross-currency tailwinds, especially due to appreciation in currencies like the Euro and British Pound, which boosted reported USD revenue growth. 'However, this partly masked the underlying weakness in volume-led business. On the profitability front, operating margins came under pressure across most firms, driven by wage hikes, higher visa-related costs, and relatively soft topline growth. Despite this, some companies demonstrated effective cost control measures through higher utilization rates, reduced subcontracting, and disciplined hiring,' said noted Anil Rego, Founder & Fund Manager of Right Horizons sector's elevated valuations are becoming impossible to justify without an earnings upgrade cycle. "The Nifty IT index, encompassing many midcap firms, had surged significantly, trading at a premium to its long-term average," Bolinjkar observed. "Without a clear earnings upgrade cycle, these elevated valuations appear difficult to justify."Even after recent corrections, some midcap IT stocks might still be considered stretched given the current growth outlook, a sobering assessment for investors who thought they'd found safety in the sector's supposed growth engines.'The outlook for midcap IT in the next few months appears mixed, with potential for continued pressure but also some pockets of resilience. Q1 FY26 results indicate a subdued start for the Indian IT sector, a trend likely to persist for midcap players. Most IT firms are maintaining cautious guidance, with largecaps like Infosys revising its FY26 revenue growth guidance to a modest 1-3%, reflecting a challenging demand environment. The lack of clear guidance from some large players further underscores this cautiousness for midcap players,' Bolinjkar most companies remain guarded in their short-term outlook but are optimistic about a recovery in H2FY26, as client budgets stabilize and deferred projects start ramping sector appears to be in a consolidation phase, with performance divergence expected to continue across players, Rego sums it up. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
2 days ago
- Business
- Time of India
Not just TCS: Q1 results destroy midcap IT's last standing heroes
The darling status of India's midcap IT companies is evaporating faster than their stock prices, as investors who fled largecap IT bellwethers for supposedly safer harbors discover there's nowhere to hide in the sector's brutal downturn. While Tata Consultancy Services ( TCS ) has grabbed headlines with its 12,000-employee layoff plan and share prices being down one-third from peak, the once high-flying midcap IT stocks , previously shielded by their growth engine reputation, are also nosediving. The Q1 earnings season proved to be a tough one for mid-tier IT companies, with most reporting topline misses that sent investors scrambling for the exits. Having lost about 10% in a week, Persistent shares are in bear grip and down about 24% from peak. Coforge shares have also lost about 7% of its value in the last one week alone. Explore courses from Top Institutes in Please select course: Select a Course Category Cybersecurity Design Thinking healthcare Digital Marketing Project Management Technology Management Leadership Product Management Finance MBA MCA Data Science Healthcare CXO Data Science Operations Management Others others Data Analytics Skills you'll gain: Duration: 10 Months MIT xPRO CERT-MIT xPRO PGC in Cybersecurity Starts on undefined Get Details " Q1 results triggered a sharp stock correction for most of the mid-tier IT companies," said HSBC India's Yogesh Aggarwal. "Every company print was interesting, with some idiosyncratic take-away." The grim reality: even companies posting what appeared to be decent numbers couldn't escape punishment. Mphasis "finally reported a sharp decline in its top logistic client" but somehow also delivered "strong growth and extremely strong deal wins". Also Read | Trent, TCS shares worst Nifty performers in 2025. Why 2 Tata stocks are down at least 25% this year Live Events Cash flow crisis? Capital intensity is spiking across midcap IT as companies leverage their balance sheets to win fixed-price contracts. Coforge sits at the epicenter of this debate, with its free cash flow to revenue conversion averaging a mediocre 5% in recent quarters. "Most companies are leveraging their balance sheets to offer better terms for fixed-price contracts," Aggarwal warned, highlighting how desperate the competition has become. The cash conversion crisis isn't isolated to Coforge. Persistent has seen similar increases in contract assets leading to weaker cash conversion, while even Mphasis reported the troubling trend in Q1. Also Read | Explained: Why TCS firing 12,000 employees may be a canary in the mine and what it means for investors What analysts say Despite the carnage, some analysts are doubling down on beaten-down names. Jefferies upgraded Mphasis to BUY, arguing that "the key overhang in logistics vertical is behind" and raising their price target to Rs3,100 based on "an improving growth outlook." For Coforge, Jefferies maintained its BUY rating with a raised price target of Rs2,030, expecting the company to deliver 23% EPS CAGR over FY26-28 despite current struggles. But Vinit Bolinjkar, Head of Research at Ventura Securities, struck a more cautious tone: "The Q1 FY26 earnings season proved challenging for midcap IT companies in India, despite initial investor preference for them over large-cap IT firms." The pain isn't just domestic. Weak discretionary spending as clients in the US and Europe delay IT projects amid trade and inflation uncertainties is crushing revenue conversion. "Deal pipelines remained robust, their conversion into revenue was slow, particularly impacting sectors like manufacturing, auto, and consumer packaged goods," Bolinjkar explained. A notable trend this quarter was the role of cross-currency tailwinds, especially due to appreciation in currencies like the Euro and British Pound, which boosted reported USD revenue growth. 'However, this partly masked the underlying weakness in volume-led business. On the profitability front, operating margins came under pressure across most firms, driven by wage hikes, higher visa-related costs, and relatively soft topline growth. Despite this, some companies demonstrated effective cost control measures through higher utilization rates, reduced subcontracting, and disciplined hiring,' said noted Anil Rego, Founder & Fund Manager of Right Horizons PMS. Valuation check The sector's elevated valuations are becoming impossible to justify without an earnings upgrade cycle. "The Nifty IT index, encompassing many midcap firms, had surged significantly, trading at a premium to its long-term average," Bolinjkar observed. "Without a clear earnings upgrade cycle, these elevated valuations appear difficult to justify." Even after recent corrections, some midcap IT stocks might still be considered stretched given the current growth outlook, a sobering assessment for investors who thought they'd found safety in the sector's supposed growth engines. 'The outlook for midcap IT in the next few months appears mixed, with potential for continued pressure but also some pockets of resilience. Q1 FY26 results indicate a subdued start for the Indian IT sector, a trend likely to persist for midcap players. Most IT firms are maintaining cautious guidance, with largecaps like Infosys revising its FY26 revenue growth guidance to a modest 1-3%, reflecting a challenging demand environment. The lack of clear guidance from some large players further underscores this cautiousness for midcap players,' Bolinjkar said. However, most companies remain guarded in their short-term outlook but are optimistic about a recovery in H2FY26, as client budgets stabilize and deferred projects start ramping up. The sector appears to be in a consolidation phase, with performance divergence expected to continue across players, Rego sums it up. ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
Mint
4 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.
Time of India
6 days ago
- Business
- Time of India
Mphasis Q1 profit up 8.4% on-year on strong BFSI, TMT show
Blackstone-backed mid-sized IT firm Mphasis on Friday reported a first-quarter net profit of Rs 442 crore, up 8.4% from a year earlier by 1.1% lower for the quarter ended June 30 rose 9.2% YoY to Rs 3,732 crore, lifted by strong performance in its verticals serving the banking, financial services & insurance (BFSI) and technology, media & telecommunications sectors, despite a 50% fall in logistics & transportation business. On year, the revenue was almost the growth was boosted by the Americas, which constitutes more than 80% of revenue share, and India, led by ramp ups in recent large reported strong deal wins. Quarterly total contract value (TCV) at $760 million was the highest on record and up 138% from a year earlier. The management said 68% of these were the four large deals won in the June quarter, three were $100 million contracts and one was $50 million. Order from It saw a 47% increase in the banking and financial services (BFS) segment from a year earlier. Non-BFS orders rose 108%.Operating margin was flat sequentially at 15.3% and a tad higher from 15% a year an investor presentation, Mphasis CEO and managing director Nitin Rakesh and chief financial officer Aravind Viswanathan highlighted continued volatility and lack of tailwinds in the market, with decision cycles remaining elongated due to uncertainty and geopolitics and cyber still dominating Bengaluru-headquartered firm expects its growth in the congoing fiscal 2026 to be two times faster than the industry, 'on the back of our Q1 performance and steady conversion of TCV to revenue', according to the investor presentation. It targets an operating (EBIT) margin of 14.75-15.75% for the fiscal experts estimate the IT sector to grow around 3-5% this fiscal said its wholly owned US subsidiary, Mphasis Corporation, acquired a 26% stake through preferred shares in Bengaluru-based Aokah, a platform-as-a-service company designed to help enterprises set up, scale, and optimise global capability shares ended 1.3% lower at Rs 2,619.55 on the BSE Friday.
Mint
7 days ago
- Business
- Mint
Mphasis share price jumps 5% in a weak market; what is driving the stock after Q1 results?
Mphasis share price jumped over 5 per cent in intraday trade on the BSE on Friday, July 25, defying weak market sentiment. Mphasis shares opened at ₹ 2,628.80 against their previous close of ₹ 2,655.10 and rose 5.2 per cent to their intraday high of ₹ 2,792.50. Around 9:55 AM, the IT stock traded 3.44 per cent higher at ₹ 2,746.40. Equity benchmark Sensex was 0.43 per cent down at 81,831 at that time. The mid-cap IT company's Q1 results seem to have boosted investors' interest in the stock as it looks set to snap its seven-day losing streak on Friday. On Thursday, July 24, Mphasis said it recorded the highest-ever deal wins total contract value (TCV) of $760 million in Q1FY26, of which 82 per cent were in new-gen services. 'We were early adopters and implementers of AI-based solutions for our clients, which has positioned us well to help with their AI journey, create efficiencies, cost savings and minimise project risks, while at the same time, accelerating our business. This is reflected in our highest-ever quarterly TCV of $760 million, of which 68 per cent is AI-led. Overall, it is a good start to the new financial year, which sets the stage for the year ahead,' said Nitin Rakesh, Chief Executive Officer and Managing Director, Mphasis. Mphasis's gross revenue for the quarter grew 0.4 per cent quarter-on-quarter (QoQ) and 9.2 per cent year-on-year (YoY) in Q1FY26 on a reported basis and grew 1 per cent QoQ and 6.5 per cent YoY in constant currency. Net profit, however, declined 1.1 per cent QoQ but grew 9.2 per cent YoY to ₹ 441.7 crore. (This is a developing story. Please check back for fresh updates.) Read all market-related news here Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
