LTIMindtree and Persistent Found Growth Where Big IT Couldn’t

Mid-cap IT delivered the only real surprise of the December quarter. While the big five crawled through yet another soft season, talking up AI at every turn, LTIMindtree and Persistent Systems ran ahead of expectations. Revenues beat estimates, and growth looked real. 

But the quarter also revealed a harder truth. Growth came with a bill, and the bill was written by the state.

Both companies grew faster than most of their larger peers in a season that typically disappoints. Persistent ended the quarter with $422.5 million in revenue, up 4.01% sequentially and 17.3% year on year. More than a third of that growth came from banks and financial institutions. 

LTIMindtree closed the quarter at $1.2 billion, growing 2.4% sequentially and 6.1% from last year, driven largely by manufacturing clients, which now account for a fifth of its business.

In a quarter marked by fewer billing days and heavier holiday disruption, that performance stood out. It wasn’t an isolated case. Over the past few quarters, most mid-sized IT firms have consistently outperformed their larger peers on revenue growth, helped by AI-led deal wins.

What Went Well?

Analysts had expected LTIMindtree to grow only 2.2%, and Persistent 3.1%. Both cleared the bar. More quietly, both also outpaced four of the big five. 

TCS grew at 0.6%. Infosys at 0.5%. Wipro at 1.2%. Tech Mahindra at 1.5%. Only HCLTech moved faster, at 4.1%. 

Tech Mahindra’s quarter was also comparatively better than the other four IT firms when it came to profitability.

For once, mid-caps looked like the growth story within Indian IT.

Management, too, struck a confident note. LTIMindtree pointed to a tighter execution, stronger deal flow, and rising traction across AI-led offerings. “This confidence is supported by our execution discipline, improved deal momentum, and the traction we are seeing across our AI-led offerings,” Venu Lambu, chief executive of LTIMindtree, said during the company’s post-earnings analyst call.

Persistent Systems CEO Sandeep Kalra flagged fresh demand from healthcare and banks, where data modernisation and application revamps are finally moving from conversation to contracts. 

It was a very different mood from the big firms, which continue to warn of weak demand and low single-digit growth for a third straight year. But the numbers masked a deeper problem.

Despite This, Profitability Took a Hit

Persistent’s operating margin fell 190 basis points to 14.4%. The culprit was not pricing, lower utilisation, or currency swings. It was regulation. New labour codes pushed up basic pay, triggering an exceptional cost of ₹89 crore in a single quarter.

LTIMindtree took an even heavier blow. Labour codes wiped out ₹590 crore from profitability. Without that charge, margins would have risen to 16.1%. With it, they crashed to 10.6%.

Across the top 10 IT firms, the labour code impact has now crossed $575 million this quarter. Analysts and executives, however, expect it to be a one-time impact, with limited margin hit from the next quarter.

This quarter was not about efficiency. It was about staying afloat after compliance.

Net profit told the same story. LTIMindtree’s profit barely budged at $150 million. Persistent’s fell 6.8% to $48.3 million, despite faster revenue growth.

AI, meanwhile, sat quietly in the background. Neither company revealed AI revenue—unsurprising, given that their larger counterparts only became more vocal about their AI-led strategies this quarter, without always putting numbers to them.

Both firms insisted AI is helping them win market share. Yet, LTIMindtree admitted that AI is cutting revenue from its largest clients. “Every customer goes through its productivity journey because nobody is sitting quiet when it comes to what can be done on AI or the existing book of business,” Lambu said, adding that the company’s top five clients are the biggest accounts with sizable revenue, which explains the short-term decline.

Translation is simple. AI is helping clients do more with less. Until those journeys stabilise, revenue from the biggest customers will keep shrinking.

This is the first visible sign of what AI is really doing to IT services. It is winning deals and protecting pipelines. But it is also compressing the very revenue it helps create.

Persistent appears less exposed for now, helped by fresh work in healthcare and BFSI, where modernisation budgets are still being released. LTIMindtree looks more vulnerable, because its largest accounts are already deep into automation.

Headcount trends reinforce the shift. LTIMindtree added 1,511 employees to reach 87,958. Persistent added 487 to reach 26,711. Growth continues, but hiring remains cautious as productivity rises. The same pattern is visible for larger IT firms, which, together, have added only 17 net employees over the last three quarters.

In the same quarter, AI has essentially rescued the growth narrative for TCS, Infosys, HCLTech, Wipro and Tech Mahindra. Mid-caps are now walking the same path, only faster, and with far less protection.

The post LTIMindtree and Persistent Found Growth Where Big IT Couldn’t appeared first on Analytics India Magazine.

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