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On the front foot now

WPRO’s 1Q performance met expectations. Revenues, though down 2% cc QoQ (JMFe: - 2%), came in the upper half of its -3.5% to -1.5% guide. EBIT margin at 17.3% (-20bps; JMFe: 17.3%) remained in a narrow range, offsetting revenue contraction – a common theme in recent history. With margins now in WPRO’s target band of 17-17.5%, its focus has pivoted decisively to growth. TCV of USD 5bn at book-to-bill of 1.9x, highest across peer group, offers strong evidence. It won two mega deals (USD 500mn+) in 1Q, on the back of Phoenix deal in 4Q (GBP 500mn+). Importantly, all these deals have come in multi-vendor scenarios, underlining WPRO’s competitive positioning and improved win ratio, an oftenunderrated aspect of WPRO’s strength. Healthy mix of new scope in bookings, receding client specific challenges in EU and absence of drag from CAPCO mean TCV-revenue conversion should be better too. CAPCO, with USD 1bn of LTM bookings, could in fact add to growth. These reflect in management’s stronger 2H outlook. Deal transition cost could weigh on near-term margins though. That is however a small, and transitory, sacrifice to gain the most potent margin lever – growth. We have raised FY26/27E cc revenues but lowered margin estimates to model these. Though EPS neutral, improving growth prospects should reflect in better multiples. We reiterate BUY with a revised TP of INR 320 (from INR 310).

* 1QFY26 - meets expectations: WPRO reported -2% cc QoQ growth in 1Q, in-line with JMFe. This was in the upper half of WPRO’s -3.5% to -1.5% guidance. Barring Technology and communications (+0.4% cc QoQ) and Health (0.5% cc QoQ), all other verticals declined. CAPCO, WPRO’s consulting arm, grew 6% YoY in 1Q. Among geographies, EU led the decline (-6.4% cc QoQ) while APMEA (+0.6%) grew slightly. EBIT margin declined 20bps to 17.3%, in-line with JMFe. Higher employee (+60bps QoQ) and sub-con (+40bps) were key headwinds, offset by lower legal/professional fees (-60bps) and operational efficiencies. PAT came in at INR 33.4bn, vs JMFe/Cons est. of INR 33.4/32.5bn. This included a one-time restructuring cost of INR 2.4bn.

* Deal wins, guidance and outlook: WPRO reported TCV of USD 4,971mn, at a book-to-bill of 1.92x, highest since this metric is being reported. It won 16 large deals (USD 30mn+) worth USD 2.7bn, up 130% YoY. These include two mega deals (USD 500mn+), both in financial services space. Additionally, it indicated that one of the large deals in Hi-tech vertical could potentially convert into a mega deal. These are informing management’s confidence of a stronger 2H. It however guided for a -1% to +1% cc QoQ growth for 2Q, in-line with our expectations. These suggest that mega deals will likely transition through 2Q and start to accrue to revenues from 3Q. That will however put pressure on margins. Management is prioritising execution and growth, though will endeavour to offset margin pressure through operational efficiencies.

* Marginally raise EPS; maintain BUY: Longer tenure of these mega deals restrict uplift to our FY26/27E USD revenues to 30-40bps. 30-40bps lower EBIT margin assumption offset that too. Our FY27E EPS is however up 3%, as we build buyback in FY27 (earlier FY26), which we believe is still not off the table. Retain BUY.

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SEBI Registration Number is INM000010361