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Weak Q1 start, challenging FY27 ahead]

LATENTVI reported a weak Q1FY27 performance, with USD revenue declining 3.5% QoQ (vs. our estimate of +0.8%), while adjusted EBITDA margin at 20.4% missed our estimate of 22.2%, impacted by wage revisions for ~70% of employees and lower operating leverage. The revenue decline was attributed to volume discount (~USD400k QoQ) and completion of project-led contract (impacted ~USD875k QoQ) predominantly within Decision Point CPG business. Despite the Q1 weakness the management has maintained its FY27 revenue visibility of ~12-13% YoY USD growth, which translates to ~7-7.5% CQGR for the rest of the year. We believe the outlook implies a significant ask over the remaining quarters, considering the continued volatility persists in its Hi-Tech vertical. Hence, we lower our FY27E/FY28E USD revenue growth estimates to 10.3%/17.2% (from 15.0%/18.6%). Following the Q1 margin miss, residual wage hike impact (50-70bps QoQ in Q2) with continued investments in senior leaders & AI buildout, we expect margin recovery to remain gradual and reduce our adjusted EBITDA margin estimates to 21.5%/22.1% (from 22.5%/23.0%), resulting in an EPS cut of ~4%/~9% for FY27E/FY28E. Consequently, we downgrade the stock to ACCUMULATE (from BUY earlier) and revise our target price to INR 320 (earlier INR 350), based on 25x FY28E P/E

Revenue: Rev. in Q1 came in at USD 30.3 mn, down 3.5% QoQ, below our est. of USD 31.7 mn. Segment wise FS and Technology segments grew by 20.6% & 1,8% QoQ respectively. Consumer & Retail declined sharply by 34.2% QoQ due to certain one-off engagements in Q4FY26 than did not get extended into Q1, and Industrial segment declined by 3.5% QoQ. Geography wise, USA grew by 2.2% QoQ while Europe & Row declined by 35.7% QoQ each having been affected by the consumer business.

Operating Margin: EBITDA margin of 20.4%, down 370 bps QoQ came below our est. of 22.2% due to wage hikes implementation (-270 bps) and revenue contraction (-190 bps), partially offset by tailwinds of lower travel related costs compared to Q4FY26 (+100 bps). Management expects to maintain FY27 EBITDA margin in the band of 20-21% despite the residual impact of wage hike, continued investment in AI capabilities and senior leadership

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