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Medium-Term Outlook Remains Strong; Quarter Impacted by Project Delays

AUPS reported a weak quarter due to Middle East-led execution delays and elevated investments, resulting in near-term margin pressure. Banking revenues remained flat YoY at INR 1,560 Mn, while the TIG segment delivered growth of 11.8% YoY to INR 1,901 Mn. We believe AUPS remains well-diversified, with multiple medium-term growth levers across banking modernisation, transit infrastructure, and the emerging data centre business. However, the company remains in an investment-heavy phase while also facing near-term execution challenges. Accordingly, we reduce our target multiple to 22x and derive a revised TP of INR 1,250 reiterating our BUY rating, as valuation remains attractive with the PEG below 1x. This is further reinforced by a broadly consistent valuation implied under our DCF methodology.

Revenue and EBITDA Miss Estimate amid Execution Delays

* AUPS reported Q4FY26 revenues at INR 3,456 Mn (vs CIE est. INR 4,185 Mn), reflecting 5.7% YoY growth and declined by 6.9% QoQ. For FY26, revenues came in at INR 14,111 Mn, up 20.3% on a YoY basis

* EBITDA came in at INR 668 Mn (vs CIE est. at INR 880 Mn), up 1.3% YoY. EBITDA margin came in at 19.3% (vs CIE est at 21.0%), down 80 bps YoY. For FY26, EBITDA came in at INR 2,823 Mn, up 16.8% YoY

* PAT for the full quarter came in at INR 624 Mn (vs CIE est. at INR 679 Mn), up 24.0% YoY. Reported EPS for the quarter came in at INR 11.4

Execution Delays Pressure Near-term Growth; Data Centre Business at an Inflection Point:

Q4FY26 performance was primarily impacted by the conflict in the Middle East, which delayed committed deal closures and project executions. The company was unable to go live on certain engagements, amid the ongoing regional disruption. Despite the near-term softness, the order book remained strong at INR 18 Bn at the end of FY26 (+5.9% QoQ, +28.6% YoY), implying a healthy 1.3x LTM book-to-bill ratio, with 68–72% executable over the next 12 months. The Data Centre business reached a clear inflection point during FY26, driven by the company’s largest-ever data centre order worth INR 3.5 Bn from a leading hyperscaler operator, alongside a significant brownfield facility design and execution mandate in Mumbai. We believe the pipeline across the Transit and Data Centre segments remains strong, though AUPS may continue to face near-term headwinds in the Banking & Fintech business.

Investment-heavy Phase: Software 2.0 and AI:

AUPS remains in an investment-intensive phase; the management guided for total R&D spends of INR 1.5–2.0 Bn in the next year. The primary focus is rebuilding the entire product suite into "Software 2.0," utilizing agentic AI architectures where AI agents handle reasoning and workflows in real-time. In the Transit segment, investments are being directed towards owning the full technology stack across software, systems, and hardware to improve long-term integration capabilities and margin profile. Given the elevated investment cycle, we expect EBITDA margin to decline by ~60 bps in FY27E before gradually expanding in subsequent years as the company starts realizing productivity gains and operating leverage from these investments.

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