Technology biggies surpass midsize peers

Bangalore: According to the Indian information technology (IT) industry's results for the June quarter, large companies have been able to contain the impact of wage increases on margins. On the other hand, the smaller firms saw a big dent in profitability. Adding to it, the revenue of midsize firms continues to lag.

On an aggregate basis, India's top three IT companies reported a 5.2 percent increase in revenue and a 2.8 percent rise in earnings before interest and tax (Ebit). The Ebit margin declined by 60 basis points (bps).
Wipro's IT services business reported a 37 bps margin improvement, Tata Consultancy Services reported a 36 bps decline and Infosys Technologies Ltd's margins fell by 178 bps.

But the results of six midsize firms including Polaris Software Lab, MindTree, Infotech Enterprises, KPIT Cummins Infosystems, Persistent Systems and Mastek have fall by as much as 29.4 percent on an aggregate basis.

Some of these midsize firms have said that wage hikes squeezed margins by 600-650 bps. In comparison, the impact of salary hikes on large companies was 200-300 bps.

Apart from this, revenue growth has also been higher for the larger firms, bringing the benefit of higher operating leverage.