Coforge, Cyient, Persistent Systems: Mid-tier IT companies see tough start to FY26; is there any silver lining?

The first quarter (Q1FY26) earnings season was tough for mid-tier information technology (IT) companies, with most stocks facing sharp corrections following mixed performances, HSBC Global Investment Research said in a report.

While each company delivered unique takeaways, analysts are treading cautiously and largely maintaining ratings across the board, note analysts at HSBC.

Despite reporting a long-anticipated decline in revenue from its top logistics client, Mphasis delivered standout performance with broad-based deal wins and a record book-to-bill ratio (BBR) of 1.8 times.

Analysts believe the worst is behind for the company and see it as well-positioned to benefit from a recovery in US banking and mortgage markets. Its dollar revenue is projected to grow at a compounded annual growth rate (CAGR) of 7.5% CAGR over FY25–27 with improving margins, HSBC noted.

Hexaware, too, continues to shine on structural strengths. Despite a topline miss and trimmed full-year outlook, it boasts strong margins and the best cash conversion among peers.

While near-term growth has weakened amid deal delays and exposure to US-backed enterprises, analysts at HSBC believe that its longer-term profile remains attractive.

Coforge stood out with robust topline growth driven by the Cigniti acquisition and upbeat deal momentum.

However, the company’s free cash flow (FCF) conversion remains a concern, averaging just 5% in recent quarters due to high capex and increased contract assets.

While Coforge guided for margin expansion, analysts remain cautious about one-offs and execution risks.

Persistent Systems disappointed the Street with weak growth, particularly in its healthcare vertical, though it retains optimism for a rebound.

Meanwhile, Cyient continues to lag behind its peers. The company has underperformed for two consecutive years and is expected to remain slow until at least the second half of the current financial year.

Leadership transition is underway with the appointment of former HCL Tech executive Sukumal Banerjee as CEO. Analysts await clarity on the turnaround strategy, HSBC added.

Across the board, capital intensity is rising among mid-tier IT players, with Coforge, Mphasis, and Persistent reporting increases in contract assets—indicating more client-friendly fixed-price contracts.

Analysts warn that the transition of these assets to revenues and cash flows will be a key trend to watch, especially given the pressure on margins and high capex.

Despite their higher growth potential versus top-tier IT firms, mid-tier players are now under scrutiny for weak cash conversion and rich valuations.

Analysts caution that while structural advantages remain—such as smaller size, agile leadership, and strong upstream software relationships—the risks of stock de-rating persist if execution falters, HSBC said.