India tech mid-caps' Q2 profits to lag larger rebound

Indian mid-cap IT companies are likely to post a modest revenue growth in the June-Sept, but wage hikes, hiring and lean demand would be a drag on profits.                                            
 

Small and mid-cap IT companies have been grappling with tepid demand, high attrition rates and a rise in expenses, resulting in strain on margins and even reduced profitability for some.              
 

A Reuters poll of brokerages estimates profits at HCL Technologies to drop 3.7%, Patni Computer Systems by 28.6% and Mindtree by 44.5%.                                           
 

However, profits at Rolta and MphasiS are expected to rise.                                             
"Even if growth comes in terms of topline, it might not reflect on profitability," Sushil Financial Services analyst Dhananjay Mishra said, adding most companies had a round of salary hikes between April and June.                                            
 

Those with a higher exposure to the United States and with diversified customer base spread over areas such as banking and financial services, manufacturing, retail and telecom will see revenue grow faster, Mishra said.                                           
 

Angel Broking analyst Srishti Anand expects MphasiS to outperform its mid-cap peers.                                           
 

"Mid-caps aren't seeing large transformational deals like the large caps as of now," Angel Broking's Anand said.                           
 

"There are also a lot of margin headwinds in mid-caps due to wage inflation."                                           

MphasiS is likely to see a slight improvement in margins, she added. The company, which follows a Nov-Oct financial year, had operating margins of 21.5% in the previous quarter.