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Strong Q1, Large Deals Support FY27 Growth

PSYS reported revenue growth of 4.1% QoQ CC (vs. our estimate of 3.8%), aided by healthy growth within Hi-Tech vertical and ramp-up of large deals. The company also reported record quarterly bookings (TCV of USD1.15bn), including a USD650mn+ multi-year strategic engagement, providing confidence in sustaining strong growth over the coming quarters despite sequential weakness in the Top 6–10 and 11–20 client cohorts, attributed to project completion and closure activities. Management expects the momentum within Hi-Tech vertical to continue on the back of large deal (USD650m) ramp up, while Healthcare vertical is expected to recover over the coming quarters following a weak Q1 performance. EBIT margin of 16.0% missed our estimate of 16.5%, primarily due to proactive hiring ahead of anticipated deal ramp-ups (60bps utilization impact) and continued investments in AI capabilities. Management indicated that the annual wage revision, effective from Q2FY27, will pose a 180–200bps headwind to margins. However, the impact would largely be mitigated through operating leverage, improving utilization and offshoring, We therefore maintain our FY27E/FY28E CC revenue growth estimates of 19.9%/18.1% and EBIT margin estimates of 16.3%/16.4%. The underlying fundamentals remain strong while the valuations have stretched over the past few sessions. Hence, downgrading PSYS to ACCUMULATE (BUY earlier). We assign 32x (30x earlier) to FY28E EPS to arrive at a TP of INR 5,860

Revenue: PSYS reported Q1 revenue of USD 452mn, up 4.1% QoQ CC and 3.8% QoQ in reported terms, above our estimate of 3.5% QoQ CC. Tech segment led the quarter with 7.7% QoQ growth, while BFSI growth was steady at 2.3% QoQ and the Healthcare segment remained flat after 3 quarters of strong growth. Geography wise, the growth was broad based.

Operating Margin: Q1 operating margin came in at 16.0%, down ~30 bps QoQ inline with consensus estimate & below our estimate of 16.5%, impacted by headwinds lower utilisation rate (-60 bps) and investments in AI led delivery models (-20 bps), partly offset by tailwinds from lower doubtful debts provision (+20 bps) and favourable currency (+30 bps)

Deal Wins: Total TCV deal wins in Q1 came in at USD 1.1bn (+91% QoQ) aided by a 6.5 year strategic deal win of USD 650mn, while new TCV wins came in at USD 952mn (+133% QoQ). ACV stood at USD 537mn (+21% QoQ), with new ACV at USD 386mn (+42% QoQ), indicating continued strength in deal wins.

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