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PSYS’s 2Q operating performance was a mixed bag. Revenue grew 7.8% qoq CC, broadly in line with our estimate. Revenue growth was largely driven by ramp up of the large deal won in 2Q and a consolidation deal in BFSI. EBITM declined by 100bps qoq to 15%, below our estimate of 15.5%. Deal-win TCV remained healthy at $633.4bn (book-to-bill: 1.3x), while new deal wins came in at $367.1mn. 2Q included ~$20mn in one-off costs related to the Nagarro acquisition, with another $25–30mn expected over the next two quarters, thus weighing on reported EPS growth through to FY27. The management aims to sustain EBITM at 16-17% while prioritizing growth and investments, with the impact from large-deal amortization (a ~90bps impact in 2Q) expected to gradually reduce as costs are optimized and revenue scales up. Considering the aforementioned factors, we cut FY27E EPS by ~11% and increase FY29E EPS by 0.7%, while keeping FY28E EPS largely unchanged. Incorporating Nagarro and revising currency assumptions, we retain ADD on PSYS while increasing our TP by ~5% to Rs6,000 from Rs5,700, at 30x Sep-28E EPS.

Results summary

Revenue grew 7.8% qoq, and to $487.6mn in CC terms, broadly in line with our expectation of $488mn (8.0% CC). EBITM (ex one-off Nagarro integration expenses) declined by 100bps qoq to 15% due to headwinds from net-wage hike (-140bps; gross impact of -180bps cushioned by lower ESOP cost), lower utilization (-20bps), and amortization from a large deal (-90bps), partially offset by tailwinds from lower SG&A and favorable currency movements (150bps combined). Headcount grew ~3.3% qoq to 29,598. Utilization declined by 70bps qoq to 85.8%, primarily due to proactive hiring to support ramp-up of large deals. Attrition declined by 40bps qoq to 11.9% vs 12.3% in 1QFY27. What we like: Continued growth momentum, healthy deal wins, strong cash conversion (OCF/EBITDA ~94%). What we do not like: Margin miss, softness in Europe.

Growth led by Software and Hi-Tech, along with North America

Revenue growth was driven by Software, Hi-Tech, and Emerging Industries (13.3% qoq in USD terms; 70% of incremental revenue qoq) and BFSI (6.8%), while Healthcare and Life Sciences were flat sequentially (0.1%). Among geographies, growth was led by North America (10.9% qoq in USD terms; 111% of incremental revenue qoq) and India (1.2%), while Europe (-10.0%) and RoW (-4.7%) declined sequentially.

Update on Nagarro acquisition

The company has secured more than 90% of Nagarro’s share capital and voting rights through the takeover offer, and plans to squeeze out remaining minority shareholders of Nagarro upon closing. The company expects the transaction to close by 4QFY27, after receiving approvals from the RBI and FDI authorities in Austria and Spain. Nagarrorelated one-time costs of an additional $25-30mn would weigh on reported profit over coming 2-3 quarters (~$20mn impact seen in 2Q). PSYS expects the transaction to be cash EPS-accretive in Y1, ex one-time transaction-related expenses of ~$50mn.

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