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Growth Recovery to Build from Q2; AI Reinforces Medium-term Outlook

Q1FY27 was broadly in-line; with management commentary turned incrementally more constructive on three aspects: Growth, AI monetisation and Margin expansion. The management expects growth to improve sequentially from Q2, supported by a recovery in the Consumer segment, delayed India project ramp-ups and stronger execution through H2FY27, with FY27 targeted to outperform FY26. AI monetisation continues to scale-up, with AI revenue reaching a USD 150 Mn quarterly run-rate, while productivityled pricing discussions with large clients have largely concluded, positioning AI as a growth driver rather than a near-term headwind. Organic margin is expected to expand further through operational efficiency, with the Randstad acquisition unlikely to materially dilute profitability. Despite a cautious macro environment weighing on discretionary spending, the management remains confident that improving demand, AI-led transformation opportunities and the strategic Randstad acquisition will support stronger earnings delivery, reinforcing our constructive view on the stock.

We modestly revise our estimate upwards, reflecting improving execution and a stronger AI-led demand outlook. We now expect FY27E revenue growth to remain broadly in-line with FY26, while margin is forecast to stay largely flat as productivity benefits are reinvested into AI capabilities and growth initiatives. We reiterate our ‘ADD’ rating with a TP of INR 4,350, supported by improving demand visibility, accelerating AI monetisation and a healthy medium-term earnings outlook.

Results In-line with Estimate; Deal TCVs Remains Strong

* LTM reported Q1FY27 revenues at USD 1,223.5 Mn, up 0.1% QoQ and 6.1% YoY (vs CIE estimate of USD 1,223 Mn). CC growth came in at 0.3% QoQ and 6.4% YoY. The INR revenue for Q1FY27 stood at INR 116.0 Bn, up 2.8% QoQ and 18.0% YoY (vs CIE estimate of INR 114.9 Bn).

* EBIT for the quarter came in at INR 17.9 Bn, up 5.3% QoQ and 27.9% YoY (vs CIE estimate of INR 17.5 Bn). Operating (EBIT) Margin for the quarter came in at 15.5%, a 36 bps QoQ growth and 121 bps YoY growth (vs CIE estimate of 15.2%).

* PAT for the quarter came in at INR 14.6 Bn, up 9.5% QoQ and up 17.1% YoY (vs CIE estimate of INR 14.3 Bn

Healthy Deal Momentum; Growth Recovery Hinges on Execution:

LTM reported a stable order book at USD 1.68 Bn, which includes two large deal wins. LTM reported a healthy deal momentum across iRun, iTransform, Business AI, and BlueVerse Voicing, securing infrastructure modernisation, cloud migration, AI transformation and customer service automation engagements across multiple industries. Beginning this quarter, LTM consolidated its reported into four segments: Financial Services (+3.2% QoQ) witnessing recovery, Tech & Services reported strong growth (+3.4% QoQ), Production de-grew (-5.7% QoQ) due to a fall-off in seasonal pass-through items and Consumer segment, which declined (-0.7% QoQ) due to delayed project ramp-ups in India and Middle East. Growth in the Europe is expected to accelerate from Q3 and beyond, aided by the planned acquisition of Randstad’s technology and consulting business. The management expects growth to accelerate from Q2FY27, with FY27 growth anticipated to exceed FY26's 6%. We remain cautiously constructive, with sustained growth hinging on stronger order book conversion, successful Randstad integration and a broader recovery in discretionary technology spending.

Operational Levers Support Sustainable Margin Growth

LTM reported an EBIT margin of 15.5% in Q1FY27, expanding 40 bps QoQ, driven by FX gains and operational efficiency, partly offset by the 100-bps impact of partial wage hike. The management expects margin to improve further, supported by accelerating organic growth and continued benefits from the New Horizon program. Despite the upcoming Randstad consolidation, the company remains confident of sustaining margin at or above last year's level. We, however, forecast margin to remain largely flat over FY27 as successful integration, timely synergy realisation, stronger revenue growth and faster deal conversion will be critical to achieving the targeted margin expansion.

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