Add Datamatics Ltd For Target Rs.920 by Choice Institutional Equities Ltd
AI-led Monetisation Gains Momentum; Margin Moderates QoQ:
DATAMATICS delivered a strategically encouraging Q1FY27, with growth increasingly shifting towards digital and platform-led businesses, while legacyheavy segments remained a drag. ~60% of FY27 wins are now AI-led, signalling a shift towards shorter-cycle, higher-value transformation work, although revenue conversion and ramp-up remain key monitorables. Margin performance remained healthy YoY despite sequential moderation, keeping the ~20% FY27 target achievable, subject to execution discipline. The completed TNQTech integration, with positive growth and margin contribution, provides an early proof point for DATAMATICS’ broader M&A strategy.
We remain constructive on the AI-led repositioning, while Digital Experiences recovery, AI monetisation and rising in-house/GCC competition remain key monitorables. We maintain our TP of INR 920 and ‘ADD’ rating, valuing Datamatics at 19x FY28E EPS.
Digital Operations Leads Growth; AI Investments Weigh on Technology Margin:
Digital Operations remained the key growth engine, with revenue up 16.1% YoY, supported by the TNQTech integration and healthy 12–14% growth in Digital Content. Digital Technologies grew a more modest 6.1% YoY, with profitability constrained by INR 40–50 Cr of annual AI/R&D investments, while Digital Experiences declined 5.3% YoY, albeit with early sign of recovery from recent deal wins. Education & Publishers Vertical grew 10.4% QoQ driving growth, while there was a sequential de-growth in Technology and Consulting vertical by 10.0% and Not for Profit/Govt. by 12%, respectively. With ~60% of FY27 wins AI-led, DATAMATICS is increasingly transitioning from traditional BPM towards higher-value, AI-enabled offering. The management remains confident of high-single-digit FY27 growth and ~20% EBITDA margin. However, sustained acceleration will depend on faster monetisation of AI investments and recovery in Digital Experiences, with in-house automation and GCC adoption remaining key structural risks.
Sequential Moderation in Margin amid Cost Investments; Guidance Maintained:
DATAMATICS reported EBITDA margin of 19.7% in Q1FY27, down 163 bps QoQ but up 343 bps YoY, while EBIT margin declined 169 bps QoQ to 15.3%. The sequential moderation was primarily driven by annual salary increments effective April 2026 and continued AI/R&D investments, with ~INR 40–50 Cr being invested annually in AI capabilities. The management targets a ~50 bps improvement in EBITDA margin for FY27, taking it closer to 20% and expects to sustain a 19–20% margin band over the medium-term, supported by operating efficiency and favourable business mix. We expect margin resilience to remain intact, although sustained AI investments could temper the pace of near-term expansion.
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SEBI Registration no.: INZ 000160131
