IGI Logo

Near-term Execution Delays; Strong Pipeline Supports Long-term Growth

AUPS delivered a weak Q1FY27, with execution delays and elevated investments weighing on revenue conversion and margin. Management reiterated that demand remains healthy, with execution rather than demand continuing to constrain near-term growth. We believe the weakness is largely timing-led, while the healthy order book (~INR 19.5 Bn), robust pipeline across the Transit and Data Center businesses, and expanding transaction banking opportunities across international markets underpin strong medium-term growth visibility. We lower our FY27E/FY28E earnings estimates to factor in delayed project ramp-ups and continued investments in Software 2.0. However, we retain our BUY rating and 22x FY28E EPS multiple, as the current valuation remains compelling (PEG <1x), with our DCF-based valuation also supporting the revised target price.

Revenue and EBITDA Miss Estimate amid Execution Delays

? AUPS reported Q1FY27 revenues at INR 3,581 Mn (vs CIE est. INR 3,907 Mn), reflecting 6.3% YoY and 3.6% QoQ growth.

? EBITDA came in at INR 615 Mn (vs CIE est. at INR 789 Mn), down 9.8% YoY. EBITDA margin came in at 17.2% (vs CIE est. at 20.2%), down 307 bps YoY due to higher investments

? PAT for the full quarter came in at INR 459 Mn (vs CIE est. at INR 645 Mn), down 10.6% YoY. Reported EPS for the quarter came in at INR 8.5

Execution Delays Pressure Near-term Growth; Data Centre Business Poised for Strong Acceleration:

AUPS reported a weaker-than-expected Q1FY27 performance, with revenue conversion impacted by seasonality, higher input cost, project execution delays and geopolitical disruption in the Middle East. The Banking & Fintech segment reported revenue of INR 2,010 Mn (+4.7% YoY), while the Technology Innovation Group (TIG) segment grew 8.3% YoY to INR 1,570 Mn. Despite the execution-led softness, deal momentum remained robust, with the company securing multiple marquee wins, including its largest-ever US contract (USD 33+ Mn). The order book remained healthy at INR 19.5 Bn at the end of Q1FY27 (+8.3% QoQ, +33.6% YoY), implying a healthy 1.4x LTM book-tobill ratio. Management expects revenue conversion to improve over the next one to two quarters as execution normalises. Additionally, the data center business is expected to witness a meaningful ramp-up from Q2, with a stronger execution in H2FY27 supported by capacity expansion, a robust project pipeline and large project deployments. Management expects the business to grow well above its historical 40–50% trajectory.

Capacity Build-out in Data Centre Business & Software 2.0 Weighs on Margin:

AUPS remain in an investment-intensive phase where the primary focus is rebuilding the entire banking product suite into "Software 2.0," using agentic AI architectures while expanding its presence across Southeast Asia & Europe. In the data centre business, although AUPS has secured large deals, it is building out capacity to execute such large projects which would require higher investments. Given the elevated investment cycle, we expect EBITDA margin to decline by ~200 bps in FY27E before gradually expanding in subsequent years as the company starts realising productivity gains and operating leverage from these investments.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer

SEBI Registration no.: INZ 000160131