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Balancing growth & margin amid top clients challenges

LATENTVI reported Q4 revenue of US$31.4mn, marginally below our est., while adj. EBITDA stood at 24.1% missed our estimate of 26% due to continued investments in senior leadership hiring, AI capabilities, and partnership expansion. FY26 revenue of US$120mn was broadly in line with management aspirations despite continued weakness in Technology vertical (up 9.5% YoY), while non-Tech segments delivered strong ~41% growth led by BFSI. The negative impact on Technology vertical (vendor consolidation and insourcing by top client) would lead to ~US$6.5-7mn annualised revenue hit in FY27E. However, it expects to partly (50-60%) recoup the leakage through AI-led deal wins and improving tech spending trends. The continued traction around AI is validated through growing share of Advanced AI (beyond classical automation), contributed ~49% to FY26 revenue. The revenue from the Databricks engagement stood at US$ 17.5mn in FY26 (up ~46% YoY), while it aspires to achieve ~60% YoY growth in FY27E. Management reiterated its aspiration of delivering 19-20% US$ rev. growth in FY27E, supported by 12-13% visibility from existing order book and qualified pipeline, while achieving the remainder through incremental opportunity as the year progresses. However, considering the Q4 low-base and anticipated mid-single digit growth in Hi-Tech (55% of rev). We remain slightly cautious and trimming our USD revenue growth estimates by 60bps each for FY27E/FY28E. On margins, continued investments in senior leadership, AI, and Databricks capabilities are likely to keep profitability under pressure in the near term; accordingly, we lower our EBITDA margin estimates to 23.5%/24.2% for FY27E/FY28E (24.3%/24.5% earlier). The Cash & Cash equivalent accounts for ~19% of market cap, while maintaining a healthy cash conversion of 60%. We maintain our BUY rating with an unchanged target price of INR 450, based on 30x FY28E EPS.

Revenue:

Rev. remained flattish in Q4 at USD 31.4 mn, up 0.3% QoQ, marginally below our est. of USD 31.5 mn. Growth was driven by CPG & Industrial segments which grew by 29.8% & 17% QoQ respectively while BFSI after 5 qtrs. of robust growth reported moderate growth of 0.3% QoQ. Tech segment declined sharply by 9.5% QoQ due headwinds of vendor consolidation, project rationalization, and insourcing by large clients. For FY26, company reported US$ growth of 19.7% with organic growth of ~18.2%.

Operating Margin:

EBITDA margin of 24.1%, down 60 bps QoQ came below our est. of 26% due to higher visa exp. (-110 bps), increased investments in AI & Databricks capabilities, senior leadership hiring partially offset by tailwinds of forex benefit (+110 bps) & absence of severance pay incurred in Q3

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SEBI Registration No. INH000000271Accumulate Paradeep Phosphates Ltd For Target Rs.141 by Prabhudas Liladhar Capital Ltd