New markets do the trick for mid-cap IT firms

Following a stellar performance by the top five information technology (IT) firms, mid-cap IT companies also did well this year. A perfect blend of business, focus on new markets and strengthening core competencies did the trick for them.

For the financial year 2006-07, the total net profit of the top 20 mid-cap companies grew by 47.79 per cent year-on-year, while the total revenues saw a 44.81 per cent surge. The top five IT majors grew by 44.43 per cent in terms of net profit and 41.45 per cent in revenues in the same period.

Analysts said revenues of mid-cap IT companies would continue to grow at a rate of 35-40 per cent and net profit would rise by 28-30 per cent in the next financial year. 
 

FEATHER IN THE CAP
	Revenues	%chg	Net Profit	%chg
i-flex Solutions	2,060.94	39.04	372.28	56.82
Tech Mahindra	1,242.70	31.41	235.40	129.91
Mphasis	1,195.82	27.20	119.88	-20.01
Polaris Software	1,032.37	25.12	101.06	374.24
Hexaware Techno*	936.44	35.57	133.40	41.48
Mastek*	802.80	23.10	110.25	48.97
3i Infotech	655.32	56.85	104.48	81.17
Rolta*	652.81	27.21	159.13	36.70
NIIT Techno	607.53	11.84	67.49	15.29
Figures in Rs crore for year ended March 2007 *For trailing 12 months Source: BS Research

According to an analyst, companies, which have performed well on all fronts, may cross this limit and grow by 40-45 per cent in the coming financial year.

Experts said the impact of rupee appreciation was marginal on the mid-cap companies. "Many of them are not US-centric like major players," said Rajesh Cheruvu, manager research, wealth management, UTI Bank.

For instance, Subex Azure's revenues are equally distributed among the US, Europe and the emerging markets. Analysts warned that if the rupee continues to be as low as Rs 40 per dollar then the hit would in the range of 100-150 basis points. For the financial year 2006-07, the mid-cap companies' tax was up by 152.19 per cent. Analysts attributed the increase to their focus on domestic market.

Another trend among the mid-cap companies is the focus on niche capabilities. Many of these companies have either strengthened their niche focus or are now benefiting from the acquisitions. Infotech Enterprise entered into a joint venture with Hindustan Aeronautics (HAL) to provide engineering design service in aerospace sector.

Similarly, KPIT Cummins is looking at the Japanese market with its automotive solutions. 3i Infotech entered the mutual fund vertical, both in the product and services space.

It also launched the first-ever insurance business exchange in India and also expanded its domestic BPO offering.

Similarly, Mastek's focus on the insurance sector seems to be paying well with the US and UK geographies contributing 28 per cent respectively.

However, analysts said that mid-cap IT companies should reduce their dependence on the top clients. "We have observed that many companies are biased to their top customers. That means the companies performance will depend on the ramping up operations of these clients," said an analyst.