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Growth Visibility Backed by AI-Led Opportunities; Maintain BUY

Est. Vs. Actual for Q2FY27: Revenue – INLINE; EBIT Margin – INLINE; PAT – MISS Change in Estimates YoY post Q2FY27 FY27E/FY28E: Revenue: 0.3%/0.9%; EBIT: -1.7%/1%, PAT: -1.5%/1%

Recommendation Rationale

* Tectonic and Agentic AI Gaining Traction: Indegene is witnessing increasing traction in its AI-led offerings, particularly through its Tectonic GenAI content platform. The quarterly revenue run rate of Tectonic increased from approximately US$1 Mn to US$1.7 Mn, with contracted revenue exceeding US$2 Mn per quarter. Additionally, an Agentic Agency of Record pilot with a leading pharma client has been converted into a full engagement exceeding US$1 Mn. These developments indicate a gradual shift from AI experimentation towards revenue-generating production engagements, strengthening Indegene's operational efficiencies.

* Improving Employee Productivity and Outcome-Based Pricing: During the quarter, Revenue per employee increased to US$79,600 on a TTM basis from ~US$69,000 a year ago, reflecting productivity improvements through GenAI-enabled delivery and better execution models. More than 60% of revenue is now aligned with output-based or outcomebased contracts rather than traditional FTE-based pricing. This shift allows Indegene to link revenues more closely with the value delivered to clients instead of employee deployment. Higher productivity and a greater share of outcome-based contracts are expected to support operating leverage and improve long-term margins.

* H2FY27 to Remain Stronger: Management expects H2FY27 to remain better than H1FY27, supported by a stronger revenue contribution from large contracts, continued client expansion and improving operating leverage. A major US$10 Mn outcome-based contract is expected to reach its revenue peak in Q4FY27, providing additional growth support. The company also expects organic growth for FY27 to exceed FY26 levels. Moreover, Indegene’s aim of achieving +19% EBITDA margins by Q4FY27 remains intact.

Sector Outlook: Optimistic

Company Outlook & Guidance: Indegene's growth outlook remains encouraging, supported by improving biopharma industry spending, a healthy deal pipeline and increasing traction across its AI-led offerings. Moreover, operating leverage and normalisation of investment-related costs should provide scope for earnings growth to outpace revenue growth.

Current Valuation: 26x FY28E EPS

Current TP: Rs 705/share

Recommendation: We maintain our BUY rating on the stock

Financial Performance

In Q2FY27, the company reported revenue of Rs 1,122 Cr vs Rs 804 Cr, up 39.6% YoY and 5.6% QoQ, supported by healthy client spending, expansion of existing accounts and execution of new deal wins. EBIT stood at Rs 139 Cr vs Rs 117 Cr, up 18.9% YoY and 7.1% QoQ. Thus, EBIT margin stood at 12.4%; it remained flat QoQ due to a wage hike (-216bps YoY, +17bps QoQ). Net Income grew by 10% YoY while it fell by 3.4% QoQ to Rs 112 Cr. In USD terms, revenue increased by 27.5% YoY and 4.4% QoQ to US$117.5 Mn.

Outlook

From a near-term perspective, global uncertainties will keep overall growth muted. However, the company’s core efficiencies, investments, and deal momentum across regions will support the overall business over the next couple of quarters.

Valuation & Recommendation

Indegene's growth outlook is supported by expansion of existing pharma accounts and increasing penetration of AI-led commercialisation solutions. Notably, more than 60% of revenue is linked to outcome-based contracts with AI offerings, resulting in revenue per employee of US$79,600 (15.5% YoY). On the valuation front, we value the stock at 26x FY28E EPS, reflecting its specialised positioning in the life sciences industry, domain expertise and increasing AI-led capabilities, with an unchanged TP of Rs 705/share, implying a 20% upside from its CMP. We maintain our BUY recommendation on the stock.

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