Mid-tier IT companies saw a higher sequential growth in the second quarter of fiscal 2025, driven by their focus on AI-led strategies, steady deal inflows, and growth in key verticals such as banking and financial services (BFSI) and also continued to outperform their larger peers in terms of revenue growth.
On an average the top domestic IT services companies including – Tata Consultancy Services, Infosys, HCLTech, and Wipro – reported a 2-3% revenue growth on a sequential basis, while the midcap IT companies, including Persistent Systems, Coforge, Mphasis, and Birlasoft, rose 5-6% organically.
While their growth remained in the upward trajectory, the management maintained their cautious outlook for fiscal 2025 due to continued macroeconomic disruptions such as higher interest rates in the US, the region which they cater to the most, and furloughs in the December quarter.
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Revenue and Profit Growth
Mphasis’s revenue from operations rose 3% quarter-on-quarter to Rs 3,536.15 crore in July-September. Further, the net profit increased 6% quarter-on-quarter to Rs 544.2 crore.
“Despite many ongoing challenges, the macro environment continues to trend in the right direction. Savings led transformation thesis is core to all our deal archetypes and solutions, thus significantly enhancing service delivery and savings for clients,” Nitin Rakesh, Chief Executive Officer of the company said.
Persistent Systems reported a 6% sequential increase in net profit, reaching Rs 325 crore, and a 6% rise in consolidated revenue to Rs 2,897.1 crore. The year-on-year figures are even more impressive, with net profit jumping 23.4% and revenue increasing by 20%.
Sandeep Kalra, Chief Executive Officer and Executive Director, Persistent said: “This quarter, we continued to strengthen our capabilities and advance our AI-led, platform driven services strategy.”
Meanwhile, Coforge reported a consolidated revenue from operations of Rs. 3,062 crores, reflecting a rise of around 27.5% quarter-on-quarter and of which nearly 7% was organic. And the company’s net profit increased to Rs. 234 crores, representing a growth of around 68%.
“The large deals pipeline is looking very robust and an even strengthening order executable which now is 40% higher year-on-year gives us confidence that the quarter and quarters to come shall see robust and sustained growth,” CEO Sudhir Singh said.
Birlasoft’s revenue for the reporting quarter came in at Rs 1,368.2 crore, an uptick of 3% quarter-on-quarter. But, the profits fell 15.1% sequentially to Rs 127.5 crore.
Margin Performance
Despite achieving a strong revenue growth, the mid-tier firms reported mixed results on the margin front.
Persistent’s operating margin, or earnings before interest and tax (EBIT) margin, remained flat sequentially at 14%. CFO Vinit Teredesai said that increased subcontracting costs, higher H-1B visa applications, and elevated administrative costs weighed on margins and he company is confident of maintaining margins at last year’s level of 14.5% by FY25 end, with expectations to increase margins by 200–300 basis points over the next two to three years.
Meanwhile, Coforge’s EBIT margin fell 190 basis points sequentially to 11.4% due to adjustments pertaining to the Cigniti acquisition.
Mphasis on the other hand saw a slight improvement, with its EBIT margin rising by 40 basis points to 15.4% for Q2 FY25, attributed to cost optimisation and higher onsite utilisation.
Strong Deal Momentum Across Firms
Deal wins in Q2 FY25 underscored robust demand across mid-tier IT firms, while most of the large IT services firms saw a year-on-year decline in deal wins mainly due to the absence of new mega deal wins.
Persistent Systems reported a Total Contract Value (TCV) of $529 million, up from $462.8 million in the previous quarter. The Annual Contract Value (ACV) also saw growth, reaching $348.3 million.
“This quarter, we continued to strengthen our capabilities and advance our AI-led, platform-driven services strategy,” said Kalra.
For Coforge, order intake remained resilient, with a record $516 million in deals for Q2, marking the eleventh consecutive quarter of exceeding $300 million.
Mphasis, however, experienced a drop in new TCV, with contract wins falling from $319 million in the June quarter to $207 million. Rakesh attributed this to elongated decision-making processes in larger deals, though he highlighted that “a third of our pipeline is now AI-influenced,” and the company is seeing strong traction of deals randing from $1 million to $10 million deal space.
Birlasoft signed deals worth total contract value of $136 million during the quarter with new deal wins worth total contract value of $89 million and renewals of $47 million.
Sector Performance
Sector-wise, mid-tier firms reported varying performances across verticals, with revenue from BFSI continuing to improve. Persistent crossed the $100 million mark in BFSI revenue for the first time.
Similarly, Mphasis’s BFSI vertical grew 3.6% sequentially, reaching Rs 1,689 crore. “There is definitely some spend opening up in BFSI, especially for critical programs,” said Rakesh.
Further, as companies across industries accelerate digital transformation, mid-tier IT players are capitalising on demand for generative AI solutions.
Persistent’s acquisition of Starfish Associates has enhanced its AI-powered contact center capabilities, while Arrka has expanded Persistent’s reach in digital governance, including AI governance and cybersecurity.
Mphasis has also reported that a third of its active pipeline is AI-influenced. Last quarter, Mphasis had seen considerable demand for large-scale AI projects, including generative AI initiatives expected to span two to three years, with Rakesh noting that transformation projects are becoming a core area of focus.
Looking ahead, these IT firms remain optimistic about their growth trajectories, backed by ongoing investments in AI, digital governance, and sectoral diversification.
From: financialexpress
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