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Near-term margin hit, prioritizing growth

Quick Pointers:

* Beat on revenue with modest margin expansion during the quarter.

* Upgrade USD revenue aspiration for FY26 to 19-20% (earlier 18-19%) while reducing EBITDA margin expectation to 22-23% (earlier 23-24%)

The revenue performance (+7.1% USD QoQ) exceeded our expectation (+5.0% YoY), primarily driven by momentum within Fin Services and Consumer Retail (led by DP). The growth within Tech vertical was weak (down 1% QoQ), attributed to a combination of productivity passthrough and limited insourcing within its top Tech accounts. We believe these challenges are industry-wide instead of company-oriented, which might have a near-term jerk, but equally have an upward bias to future growth. The high growth areas: Databricks engagement growing at ~80% YoY and the pipeline around GenAI (USD7mn) in Q2, gives strong visibility of growth momentum in H2 and beyond. The early efforts on investments are visible in scaling an FS account to USD6m+ band, the focus is in place to on-board similar potential accounts with additional SOWs and cross-selling activities. On margins, the company has trimmed adj. EBITDA margin band by 100bps to 22-23% for FY26, while long-term aspiration remains intact to achieve 24-25% band. The change in the near-term margin band is majorly due to (1) engaging in new scope of opportunities, and (2) investments in hiring senior leaders, Databricks practice and COE talent. We are largely keeping our EPS estimates unchanged, while passing on revenue beat and Q2 margin miss. We expect the USD revenue growth of 19.8%/21.1%/21.6%, while keeping our Adj. EBITDA margins at 22.6%/24.1%/24.5% for FY26E/FY27E/FY28E. The stock is currently trading at 35x FY27E earnings. We assign a 40x multiple to Sep’27E EPS, arriving at a target price of Rs. 600. Retain BUY.

Revenue:

Q2FY26 revenue came in at USD 29.6 mn, up 7.1% QoQ (INR 2.57 bn, up 9.1% QoQ), ahead of our estimates of USD 29 mn / INR 2.53 bn. Growth was led by the Financial Services and CPG & Retail verticals, which delivered strong sequential growth of 24.9% and 28.5%, respectively. The Technology vertical remained soft, declining 1% QoQ after muted performance in Q1.

Operating Margin:

Adjusted EBIT margin (excluding retention bonus) came in at 18.5%, up 40 bps QoQ but below our expectation of 19.1%, primarily due to higher SG&A expenses, which increased 33% QoQ to INR 316 mn on account of higher visa costs, increased marketing expenses, and consultant fees for hiring. PAT declined QoQ to INR 463 mn and came below our expectations, impacted by lower other income and a higher tax outgo.

Revenue Aspiration:

Management raised FY26 revenue growth guidance to 19– 20% (from 18–19%), supported by strong Databricks-led growth, expanding pipeline in GenAI/agentic programs, and continued FS/CPG traction — though they remain cautious on Q3 renewals and pricing pressure in Tech. EBITDA margin guidance was revised down to 22–23% (from 23–24%) as the company continues to invest in growth initiatives including Databricks capabilities, AI Center of Excellence, and local/U.S. hiring.

Valuations and outlook:

We estimate USD revenue/earnings CAGR of 20.8%/20.3% over FY25-FY28E. The stock is currently trading at a PE of 35x FY27E earnings, we are assigning P/E of 40x to Sep. 27E earnings and arrive at a target price of Rs. 600. We maintain our Buy rating on the stock.

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