“Float like a butterfly, sting like a bee,” was how heavyweight champion Muhammad Ali described his fighting style. This approach helped him overcome larger opponents such as George Foreman in 1974’s Rumble in the Jungle, and now a similar chant could be taken up by India’s outsourcing middleweights as they too outdo bigger players.
The likes of KPIT Cummins Infosystems Ltd., Hexaware Technologies Ltd. and MindTree Ltd. have posted stellar results and given promising forecasts, while those among the top tier of India’s IT sector, such as Infosys Ltd., HCL Technologies Ltd. and Wipro Ltd. have given tepid outlooks, or made comments to that effect, with the exception of Tata Consultancy Services Ltd.
KPIT Cummins Infosystems, a mid-sized software maker based in the western city of Pune, late Monday surprised analysts and industry watchers as its net profit and sales surged 66% and 62%, respectively. The maker of software for the automobile and engineering industries added that it expects profit after tax this fiscal year to grow a further 15%-20% on a 32%-35% expansion in dollar-denominated sales.
Mumbai-based Hexaware on April 29 said it expected sales for this year to grow at least 20%. The forecast came as the provider of database software and testing services reported a 64% jump in year-on-year growth in net profit for the January-March period.
The fiscal year outlooks by these two mid-sized companies are comfortably above the 11%-14% growth outlook for the industry given by trade association Nasscom.
Bangalore-based MindTree Ltd. also said its revenue growth this year would exceed the industry forecast.
Among the bigger players, Infosys has forecast revenue to grow below the Nasscom outlook, while TCS said it would just about beat the forecast. Wipro and HCL, meanwhile, have expressed concern about demand from the U.S. and Europe, the industry’s biggest markets.
A window has opened for mid-tier software companies as smaller businesses in the U.S. and Europe continue to look at outsourcing and IT to cut costs, said a Mumbai-based analyst. The contracts are not big enough to interest large IT firms like Infosys, TCS and Wipro, leaving the field open for smaller companies, the analyst said.
Naushil Shah, an analyst at Karvy Stock Broking, added that the outsourcing market has largely moved in favor of small deals worth $50 million to $75 million, instead of $100 million plus. This is where mid-tier companies have better prospects than larger peers as they can execute contracts at relatively lower profit margins due to lower overheads, he said.
Ignoring smaller deals could cost the big outsourcers, while the lower revenue base of small and mid-tier IT firms helps make their growth look strong. This trend was seen with the current large IT firms three to five years back, Mr. Shah added.
Via : wsj.com/indiarealtime