Indian IT companies: Small- & mid-tier IT firms log faster revenue traction

ET Intelligence Group: The revenue share for a sample of 82 small- and mid-tier IT companies in the total revenue of the listed Indian IT companies reached 18.4% in the December 2024 quarter, the highest in any of the quarters so far. These companies are making best of the market opportunities thereby growing faster than the top-rung peers in terms of revenue as well as net profit. This has led them to increase their revenue and profit share gradually over the past few quarters. On the other hand, the revenue share for the top five – TCS, Infosys, HCL Technologies, Wipro and Tech Mahindra – fell to 81.6% from the peak of 85.7% in the September 2020 quarter.

Among the non-top five companies, Coforge, Persistent Systems, and Sonata Software have displayed strong topline momentum in recent quarters. In the latest December quarter, proportion of cumulative revenue of the three companies increased to 23.9% from 20.9% in the December 2021 quarter and 17.4% seen in the December 2019 quarter. Each of the three companies reported a year-on-year double-digit growth in revenue in the two consecutive quarters to December 2024. In addition, Persistent has consistently reported double-digit topline growth in each of the quarters since March 2020 quarter.

Strong revenue momentum also buoyed the bottom line performance of the non-top five group over the long run. The profit share of these companies improved to 13.1% in the December 2024 quarter from 10.4% four years ago. It, however, contracted from 14.5% in the year-ago quarter.

On the margin front, while both the groups showed year-on-year moderation, reflecting pressure on profitability amid intense competition, while the top rung companies displayed higher resilience. Operating margin (EBIT margin) of the set of top five companies fell by 30 basis points to 20.8% whereas the rest of the group showed a greater contraction of 350 basis points to 13.5% in the December quarter.