IT majors beat mid-tier firms in Q1 growth rate

Growth within major verticals (BFSI, retail, manufacturing and communications) synchronized in Q1, with each vertical having delivered more than 1% QoQ median growth versus extreme volatility reported in Q4 of FY24 - Prabhudas Lilladherm, a brokerage firm, in a report

Biz Dynamics

♦ Median growth of large firms stood at 1.5% in Q1/FY25

♦ Mid-tier IT firms saw a median growth rate of 0.8%

♦ Many tier-II firms missed market estimates on revenues & profits

Bengaluru: After close to one-and-a-half-years, Indian large IT services firms have outpaced their mid-tier counterparts in terms of average revenue growth in Q1 of FY25 on the back of better deal conversion rates.

Many mid-tier IT firms were hit by seasonality and client-specific issues in the first quarter ended June 2024, pulling down their top line growth rates. Sources in the know said that recovery in the key verticals like BFSI (banking, financial services and insurance) and retail have supported the growth recovery for large firms. Especially, the BFSI vertical, which contributes close to 30 per cent of the top line for big IT firms including TCS, Infosys, HCLTech and Wipro- helped large IT companies to clock better growth during the first quarter.

“Tier-1 companies outpaced Tier-2 after five consecutive quarters and reported median constant currency (revenue) growth of 1.5 per cent QoQ (quarter on quarter), while Tier-2 revenue growth came in at 0.8 per cent QoQ,” Brokerage firm, Prabhudas Lilladher wrote in a report.

“Growth within major verticals (BFSI, retail, manufacturing and communications) synchronized in Q1, with each vertical having delivered more than 1 per cent QoQ median growth versus extreme volatility reported in Q4 of FY24,” it noted.

In the first quarter, TCS’ revenue grew 2.2 per cent in sequential term, while Infosys witnessed a revenue growth of 3.6 per cent in constant currency term during this period. Wipro’s saw a revenue decline of 1 per cent over the previous quarter in constant currency term, while HCLTech’s top line declined 1.6 per cent over the previous quarter. The median growth of the large IT firms’ revenue was at 1.5 per cent during this period.

In comparison, mid-tier IT firms’ revenues showed a divergent trend. Tech Mahindra’s revenue grew 0.7 per cent over the previous quarter, while LTIMindtree’s revenue grew 2.5 per cent during this period.

Persistent Systems reported a revenue growth of 5.7 per cent in sequential term, while L&T Technology Services reported a fall of 3.1 per cent during this first quarter. Another mid-tier firm Birlasoft reported Q1 revenue decline of 2.7 per cent on a quarter-on-quarter basis in constant currency terms. Tata Elxsi’s revenue grew 2.4 per cent on sequential basis during this period.

“The growth rates of most mid-tier IT firms have gone down in Q1 as compared to previous quarter. It no longer looks like that these firms will be able to repeat their double-digit revenue growth rates in the ongoing financial year,” said a Mumbai-based analyst.