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Steady quarter, painting positive outlook for FY27

The revenue growth (+0.3% QoQ CC) was tad below our estimates, aided by resuming growth within marquee accounts, validated through healthy growth within Tech vertical (up 3.4% QoQ CC). The weakness in Consumer and Production verticals was led by delayed ramp up (CBDT) and LQ passthrough hiccups. The India-led NN deal should start contributing from Q2 (although not to its full potential), delay in hardware procurement and memory chip shipment impacted Q1 revenue. We believe the revenue softness in Q1 should get compensated against the large deal ramp up and continued growth momentum in key verticals beyond Consumer. The strategic re-positioning on horizontal lines and AI-led work translates to USD150m quarterly run-rate in Q1, which is expected to accelerate even further as AI-led services transit from “creation” to “deployment”. On margins, it fairly exceeded our estimates due to internal margin program (fit-for-future/new-horizon) and INR depreciation in Q1, nullified the wage hike impact of ~100bps qoq. The internal deployment of AI is driving incremental efficiency within S&M team, hence limiting additional resource hiring and controlling SG&A expenses. We are keeping our CC revenue unchanged at 6.0%/7.0% YoY in FY27E/FY28E, while passing on Q1 margin beat, and revising our margins upward by 30bps each for FY27E/FY28E. With that our EPS sees an upgrade of ~2.0% each in FY27E/FY28E. We assign 18x PE to FY28E EPS for a TP of 4,200. Full valuations limits further upside. Maintain ACCUMULATE.

Revenue: LTM reported Q1 revenue of US$1.23bn, up 0.1% QoQ in reported terms and 0.3% in CC terms, slightly below our estimates. Performance was impacted by seasonal pass through in the Production segment, leading to a 5.7% QoQ CC decline, while Consumer segment declined 0.7% QoQ CC due to delayed ramp ups and delayed projects in India and Middle East. This was largely offset by strong growth in Financial Services and Tech & Services segments (+3.2% and +3.4% QoQ CC, respectively).

Operating Margin: EBIT margins improved by 40 bps QoQ to 15.5%, above our and consensus estimate of 15.1%. The sequential improvement was primarily driven by operational efficiencies from the New Horizon program & favourable currency movements, partially offset by wage hike impact (100 bps).

Deal Wins: Deal wins remained steady including 2 large deal wins, with Q1 order inflow at US$1.7bn (7th consecutive quarter of >$1.5bn bookings), driven by large & AI-led transformation deals

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