Buy Black Box Ltd for the Target Rs. 710 by JM Financial Services Ltd
Bookings reaffirm revival hopes
Black Box’s 1Q revenue growth (-3% YoY) missed expectations (JMFe: +2%). Tariff-linked delays further weighed on a seasonally soft quarter. Unchanged guidance suggests the slowdown in transitory though. Management expects Q2 to be better followed by a strong H2. Importantly, composition of deal wins, strong deal pipeline and robust order inflow guidance suggest Black Box’s refreshed GTM/Sales strategy is working. Two-thirds of Black Box’s USD 176mn order wins in 1Q were from high value contracts, a key focus area. Order pipeline remains strong at USD 2bn+. Management guided for USD 1bn order inflow in FY26 (+35% YoY; JMFe), spread across Data Centre (USD 200-250mn) and enterprises, indicating improving win-ratio. With 4-6 months’ transition phase and 9-12 months of execution timeline, this will set the company up for a strong FY27. Focus on top accounts and larger deal sizes should drive S&M leverage too, though pipeline build-up might keep the near-term margin expansion under check. We therefore build lower end of FY26’s revenue/margin guidance. Still, our EPS CAGR over FY25-28E remains healthy at 32%. In that context, valuations - at 23x FY27E EPS - appear reasonable. BUY.
* 1QFY26 – Misses expectations: Black Box’s Q1FY26 revenue declined 2.6%YoY missing JMFe: +2.4%YoY. Revenue was impacted by delayed equipment procurement at select clients due to tariff related uncertainty. Among segments, others/consulting led with 44% YoY growth, TPS grew 6% while system integration declined 6%YoY. Reported EBITDA margins stood at 8.4%, (+30bps YoY), missing JMFe: 9.0%. Margins were impacted by lower fixed-cost absorption given lower revenues. PAT rose 28% YoY to INR 474mn vs JMFe: 36%YoY. It won USD 176mn of orders, taking order backlog to USD 518mn (USD 504mn in 4Q25). Notable wins include a leading US financial services giant, large OTT player and a prominent US public services org. The company also won two significant DC orders from a large hyperscaler and a top-10 global colo provider.
* Outlook- USD 1bn+ order wins in FY26: BBOX expects Q2 growth to be better than Q1 before accelerating in H2, as recent deal wins ramp and tariff related delays normalise. Strong pipeline - USD 2bn+ - and improved win rates underpin their strong order-booking outlook as well. Management targets USD 1bn+ (+35% YoY) in cumulative order wins for FY26 and expects to exit FY26 with an order backlog of USD700mn+. This should set them up for a strong FY27. Data centre orders will contribute 20-25% of this with visibility improving across hyperscalers and colo providers. Margins are expected to recover as growth returns and SG&A reduces with tail rationalisation. These reflect in unchanged FY26 guidance - 13-17% YoY revenue growth, 9-9.2% EBITDA margin and 29%-39% YoY PAT growth. That said, a back-ended recovery is always a risk.
* EPS changes (3%)-3%; Maintain BUY: Our revenue. est. see limited changes of (0.8%)- 1% over FY26-28E as guidance remains unchanged. Q1 miss drives 16-28bps cuts to our margin est. for FY26-28E leading to (3%)-3% EPS change. We project 32% EPS CAGR over FY25-28E. Our target PER of 30x (unchanged), in that context is reasonable. Our target price rolls forward to INR 710 (from INR 670). Reiterate BUY.
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SEBI Registration Number is INM000010361
