Buy Datamatics Global Services Ltd For Target Rs. 1,130 By Choice Broking Ltd
Improved Clarity; Leads To Re-Rating
Strong Q2 Builds Conviction, Giving Long-term Clarity
DATAMATICS guided for mid-teens top-line growth, including mid-single digit organic growth in FY26. This will be led by strong inorganic revenues from TNQtech acquisition, with scaling up of strategic accounts, geographic expansion, new deals and cross-selling. Moreover, the company is focused on scaling up AI-led Product revenues within the Digital Technologies space, which witnessed a strong growth in Q2. Additionally, it aims to invest INR 400-500Mn annually on new innovations (including AI) to stay relevant on technology landscape from long-term. It is also focused on optimizing cost and maintaining margins, to drive profitable growth head. We believe the recent operational initiatives at DATAMATICS are likely to drive an improved growth and margin trajectory. Hence, we have revised our estimates upward and expect the Revenue/EBIT/PAT to expand at 11.8%/ 24.4%/ 16.4% CAGR over FY25–28E. With improved clarity on growth and margin trajectory, along with peer valuation dynamics, we have re-rated the stock with a revised Target Price of INR1,130 (earlier INR940) and recommend a ‘BUY’ rating based on FY27E & FY28E average EPS of INR 51.5, applying a 22x PE multiple (earlier 20x).
Results above Estimates; Strong Improvement in Margin
* Reported Revenue for Q2FY26 stood at INR 4,902Mn, up 4.8% QoQ (vs CIE est. at INR 4,865Mn).
* EBIT for Q2FY26 stood at INR 689Mn up 22.2% QoQ (vs CIE est. at INR 583Mn). EBIT expanded 199 bps QoQ at 14.1% (vs CIE est. at 12.0%).
* PAT for Q2FY26 spiked by 25.5% QoQ at INR 632Mn (vs CIE est. at INR 554Mn) led by margin expansion, higher other income and low finance costs.
Targets FY26E Revenue Growth in Mid-Teens; Strategic Investment in AI
Digital Operations segment contributed 55.5% to revenues, reporting 6.6% QoQ growth in Q2FY26. The TNQtech acquisition, (completed in Q4FY25), will contribute strongly to the full-year revenues in FY26. This, we believe will strongly support mid-teen growth including acquisitions. Organic growth guidance remains in mid-single digits. The Digital Technologies segment, accounting for 31.2% of revenues, grew 6.1% QoQ, whereas the Digital Experience segment declined 4.4% QoQ as two clients transitioned work to their captive centers. However, the management remains confident that overall growth will be sustained with the help of the other two verticals. DATAMATICS is extremely bullish on AI and is investing heavily in emerging technologies and innovation.
Sustained Margin Expansion Driven by Operational Efficiency
DATAMATICS reported a strong 613 bps QoQ expansion in EBITDAM to 18.1% in Q2FY26. This was driven by lower SG&A expenses and a cost-optimization exercise within the Digital Technologies business unit, which itself recorded a 390 bps QoQ improvement in EBITM to 10.8%. Within business units, the Digital Operations segment maintained a stable EBITM of 16.7% QoQ in Q2 and is expected to lead margin expansion in FY26, aided by the integration of TNQtech revenues. The Digital Experience segment also saw a healthy margin recovery, with EBITM rising 402 bps QoQ to 10.8%. We believe DATAMATICS is wellpositioned to sustain this momentum, driven by operational efficiencies and portfolio synergies, supporting further margin improvement going forward.
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SEBI Registration no.: INZ 000160131
