Mphasis' Q3 profit increased 3.5% year over year to Rs 442 crore

Mid-Tier IT Firms Mirror Large Peers as Weak Quarter, Labour Code Changes Hit Profits

The performance of Indian mid-tier IT outsourcing companies broadly mirrored that of larger peers in the third quarter of FY26, as a seasonally weak period and one-time costs linked to labour code changes weighed on profitability across the sector.

Mphasis on Thursday reported a 3.3% year-on-year increase in net profit at ₹442 crore for the December quarter, despite absorbing a one-time charge related to labour code implementation. However, profit declined 5.7% sequentially from ₹469 crore in the previous quarter. The company’s operating margin slipped 10 basis points year-on-year to 15.2%.

Revenue at Mphasis rose 12.3% year-on-year to ₹4,002.5 crore and grew nearly 2.6% sequentially, driven by an 8% quarter-on-quarter rise in the insurance vertical and a 2.5% QoQ increase in banking and financial services (BFSI), its largest segment. In constant currency terms, revenue grew 1.5% sequentially and 7.4% year-on-year.

The company reported a total contract value (TCV) of $428 million during the quarter, up from $351 million a year ago, with nearly 62% of deals being AI-led. However, TCV declined sequentially from $528 million in the September quarter. Commenting on performance, CEO Nitin Rakesh said the firm’s artificial intelligence platform was “supersizing the pipeline and deal wins,” positioning it for faster growth.

Cyient, on the other hand, posted a sharp 25% year-on-year decline in net profit to ₹91.8 crore, compared with ₹122.3 crore a year ago. The drop was attributed to one-time labour code charges of ₹42 crore and ₹8 crore in amortisation costs related to mergers and acquisitions following the spin-off of its semiconductor unit.

Cyient’s revenue fell 1.6% year-on-year to ₹1,879 crore, while constant currency revenue stood at $207.3 million. The company’s digital, engineering and technology (DET) segment—accounting for nearly three-fourths of total revenue—reported ₹1,488 crore in revenue, up 3.5% sequentially and 6.5% year-on-year. However, in constant currency terms, DET revenue declined 0.7% to $167 million.

The weak quarter also impacted margins, with Cyient’s operating margin contracting over 190 basis points to 9.5%. The company cited customer-specific project deferrals due to year-end holidays and tariff-related uncertainty as key reasons for the softer performance. Cyient added eight new clients during the quarter but did not disclose its total contract value.

Persistent Systems performed relatively better than peers despite seasonal headwinds. The results of mid-tier firms follow weaker-than-expected third-quarter numbers reported earlier by industry leaders Tata Consultancy Services, Infosys and HCLTech, all of whom faced similar pressures.

Despite near-term challenges, the $283-billion Indian IT services sector remains cautiously optimistic, with companies expecting a gradual recovery in client spending as AI-led services, digital transformation, and engineering solutions gain traction.