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Mumbai, Feb.14

AN action packed scenario awaits the mid-cap IT sector in the near future as a clutch of private IT companies, including Mahindra British Telecom, Mindtree Consulting, L&T Infotech, Infinite and Persistent, are likely to tap in initial public offerings (IPO), according to a report by investment bank Avendus Advisors.

The report `IT services mid-caps: The untold story', also forecasts a number of mergers and acquisitions, private equity plays in the Indian mid-cap IT space as companies try to move to the next level and fill the void between the large-cap and mid-cap players.

(Mid-cap IT companies have been classified as those with a market capitalisation between $100 million and $1 billion).

"We expect a number of new entrants to the publicly listed mid-cap landscape through IPOs in 2006. Calendar year 2005 saw a number of IT services companies access the Indian capital markets but most of these companies would be categorised as small-cap, except for 3i Infotech, Sasken and Prithvi Information Systems," the report said.

The other companies that may tap the IPO market are Caritor, an IT service provider focused on financial services, telecommunications, retail, manufacturing and public sector and Corpus (which is into BFSI and telecommunication space), according to Avendus Advisors, which is a market leader in IT services M&As.

An interesting finding by the report is on the stock market performance of the mid-cap companies.

"Contrary to the common perception, the mid-caps have shown stronger growth in their market cap than the large-caps (above $1 billion market caps)," said Mr Ranu Vohra, Managing Director, Avendus Advisors, releasing the report, here.

"While the median three-year compounded annual growth rate (CAGR, 2003-05) in market cap for large caps was 32 per cent, it was 37 per cent for mid-caps as a whole and 65 per cent for the top 10 best performing mid-cap companies. These companies provide a compelling value proposition because of their differentiated strategies," Mr Vohra said.

The top performing mid-cap companies have also outperformed large-cap companies in terms of revenue growth in the last three years, the report said.

The top mid-cap IT services companies in the country, according to Avendus, are Geodesic Information Systems, Cranes Software, Hexaware Technologies, Subex Systems, Aptech Ltd, KPIT Cummins Infosystems, Nucleus Software Exports, Aftek Infosys, Aztec Software & Technology and Geometric Software Solutions.

The other mid-caps that have been analysed by Avendus are Mphasis BFL, Polaris Software Lab, Rolta India, NIIT Technologies, NIIT Ltd, Visualsoft Technologies and Zenzar Technologies.

Mr Kaushal Aggarwal, Executive Vice-President, Avendus Advisors, said the investment bank sees the emergence and growth of product companies in the next 3-5 years.

"In the last few years, global venture capitalists have increasingly made investments in Indian IT product companies. With a large number of India-focused early stage funds being raised in 2006, this trend is only likely to strengthen," Mr Aggarwal said.

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(This article was published in the Business Line print edition dated February 15, 2006)
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