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TATATECH reported a soft 1Q. Consol. revenues declined 2.5% cc QoQ, missing JMFe: +0.7%. Services revenues declined 1.3% as last leg of Vinfast ramp-down and few client specific project delays weighed. Tech services declined 7.4% QoQ (+6.4% YoY) due to seasonal weakness in products business. Management sees 1Q decline in Services as transitory. Absence of Vinfast decline and resumption of delayed projects should help accelerate sequential growth from Q2 onwards. 5 deal wins across Auto and Aerospace should help too. BMW JV, on-track to for a 2H start, should ensure consistent growth through FY25. Telengana Education deal ramp from 2Q and seasonal uptick in product revenues in 2H are further tailwinds. Resilient margins (-20bps) despite revenue decline indicate sharp cost focus. That should continue. A weaker start to the year however drives 500bps cut to our FY25E USD revenue estimate. We lower our FY25-27E margin estimates by 20-40bps driving 6% cuts to EPS. We now value the stock at 55x forward EPS, at c.10% discount to our target PER for KPIT given latter’s superior growth profile. TATATECH’s broader spectrum of offerings and structural nature of demand in end-industry keep us constructive. We maintain BUY with a revised TP of INR 1,250 (from INR 1,410).

* 1QFY25 – top-line disappoints: TATATECH reported 2.5% cc QoQ decline in revenues vs JMFe: +0.7%. Miss was driven largely by weaker Tech Services growth. Services revenues declined by 1.3% vs JMFe: +0.4%. Tech Services on the other hand, declined by 7.4% QoQ vs JMFe: 0.1%. Seasonal softness in product business dragged while Education business grew 4% QoQ. Within Services, Auto declined by 3% QoQ while non-auto grew 5% QoQ, likely on Airbus deal ramp. Ex-Vinfast, Services grew 1% QoQ. EBIT margin was down 20bps to 18.2%, missing JMFe: 18.7%. Employee expenses were flat while higher professional/advisory expenses were partially offset by lower sub-con and outsourcing expenses. PAT came in at INR 1,620, below JMFe: INR 1,824mn.

* Outlook - resilient: Management attributed 1Q softness in Services to Vinfast ramp-down and delayed/staggered start to a couple of large projects. Management confirmed that Vinfast decline is now largely behind. Management mentioned that project delays are isolated and customer-spefic and do not reflect broader demand trends. The company won 5 large deals including deals from an Aerospace Tier-1 (new logo), global battery EV manufacturer and a CV OEM for SDV program. Consistent growth in the mobility business by peers (Tata ELXSI and LTTS – both not rated) supports management assessment of the transitory nature of growth blip in 1Q. Management is focussed on preserving margins and expect flat to slightly better margins through FY25. It reiterated its long term goal of achieving 20% EBITDA margin.

* Cut EPS by 6% Maintain BUY: We buld growth acceleration from 2Q. But a weaker start results in c.500bps cuts to our FY25E USD revenue. Lower base flow into FY26/27E USD revenues as well, despite similar growth assumptions. Consequently, our FY25-27E EPS are down by 6%. We lower our target multiple to 55x (from 60x) to reflect lower growth (14% EPS CAGR over FY24-27E vs 17% earlier). Retain BUY with a revised INR 1,250 TP.

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