IGI Logo

Growth Quality Improves; Margin Outlook Remains Positive:

Q1FY27 was ahead of expectations, with broad-based growth, robust deal wins and continued margin expansion, reinforcing translation of TECHM's multi-year transformation into tangible operating improvements. The management reiterated its ambition to deliver above-peer growth with 15% EBIT margin in FY27, supported by three consecutive quarters of USD 1 Bn+ deal wins, improving client mining and healthy execution across key verticals. While pockets of weakness persist in legacy services and select enterprise spending areas, demand remains healthy across cloud, data, AI, enterprise applications and modernisation. We believe sustained deal conversions, improving execution and continued benefits from Project Fortius positions TECHM for another year of above-industry growth and gradual margin expansion. We raise our FY27/FY28 revenue estimates by 1.0%/1.5%, while maintaining our ‘ADD’ rating and TP of INR 1,600, based on 18x FY28E EPS.

Strong Growth and Margin Expansion Backed by Robust Deal Momentum

* TECHM reported Q1FY27 revenues at USD 1,660 Mn, up 2.2% QoQ and 6.1% YoY (vs CIE estimate of USD 1,635 Mn) while in CC terms the top-line growth was 2.6% QoQ and 6.6% YoY.

* EBIT stood at INR 22.6 Bn, up 8.6% QoQ and 53.3% YoY (vs CIE estimate of INR 21.6 Bn). Operating (EBIT) margin expanded to 14.4% for Q1FY27, up 58 bps QoQ (vs CIE estimate of 14.1%).

* PAT for the quarter came in at INR 14.6 Bn, up by 8.2% QoQ and 28.4% YoY (vs CIE estimate of INR 17.0 Bn).

Broad-based Growth Sustains; Deal Momentum Reinforces Visibility:

Revenue growth remained broad-based, with all verticals delivering YoY growth, led by Manufacturing (+17.2% YoY), Retail, Travel & Logistics (+8.6% YoY) and BFSI (+8.1% YoY), while Communications continued to benefit from large deal ramp-ups despite seasonal and one-off headwinds. Large-deal momentum remained robust, with TCV of USD 1.08bn (+33.3% YoY) marking the 3rd consecutive quarter of USD 1 Bn+ bookings, while the number of USD 50 Mn+ clients increased by seven YoY, reflecting deeper client penetration and improving execution. The management expects the current growth momentum to sustain, supported by healthy deal ramp-ups, a strong pipeline and increasing demand across cloud, AI, enterprise applications and data modernisation, although macro conditions remain mixed across Retail and selective legacy technology areas. We expect TECHM to continue outperforming peers throughout FY27, supported by improving market share, diversified growth drivers and sustained large-deal conversions

Margin Expansion Continues; FY27 15% EBITM Target Intact:

EBIT margin expanded ~60 bps QoQ and 330 bps YoY to 14.4%, marking the 11th consecutive quarter of margin expansion, driven by volume growth, Project Fortius savings and disciplined SG&A management. The company reiterated its FY27 ambition of 15% EBIT margin, with further improvement expected through gross margin expansion, utilisation gains and portfolio rationalisation, partly offset by phased wage hikes in Q2 and ongoing AI investments. We believe execution discipline, pricing focus and productivity initiatives are expected to continue to support gradual margin expansion, with operating margin likely to approach the management's targeted 15% by Q4FY27 despite near-term cost headwinds.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131