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Growth remains elusive as deal wins weaken

WPRO reported flattish IT Services revenue growth in Q2FY27, ahead of our estimate of -0.5% QoQ CC, while EBIT margin expanded 50 bps QoQ to 16.5%, marginally above our estimate of 16.4%. Growth was led by Consumer (+2.6% QoQ CC) and BFSI (+1.0%), offset by continued weakness in Healthcare (-3.8%) and Tech & Comms (-2.6%). Margin expansion was aided by operational improvements and rupee depreciation, despite continued investments in the business. Bookings declined sharply, with total TCV down 22.9% QoQ CC to USD 2.6bn (lowest in history) and large-deal TCV declined 58.6% to USD 0.7bn. Management clarified that two deals closure were delayed and are expected to close in Q3, potentially supporting revenue upside in Q4FY27. It remains optimistic about Q3 deal closures, citing a robust pipeline. However, Q3 revenue guidance of -1.5% to +0.5% QoQ CC remains muted, partly due to seasonal furloughs. While management sees AI-led transformation, legacy modernisation and agentic AI as growth opportunities, the weakness in discretionary areas continue to weigh on traditional IT spending. Following the better-than-expected Q2 performance, we marginally improve our FY27E IT Services revenue est. to -0.4% YoY CC (from -0.7% YoY CC earlier), while keeping our FY28E/FY29E growth estimates unchanged at 0.4%/0.9% CC. We maintain our EBIT margin estimates at 16.5%/16.7%/16.8% for FY27E/FY28E/FY29E, respectively. We assign a PE of 11x to Sep. 28E EPS to arrive a TP of INR 166 (earlier INR 154) and maintain our HOLD rating.

Revenue:

IT Services revenue was USD 2.61 bn, down 0.1% QoQ in CC, above our and consensus est. of 0.5% & 0.7% QoQ CC decline respectively. Growth was muted due to weakness in healthcare segment particularly in America region. Segment wise BFSI, Consumer & EMR grew by 1%, 2.6% & 1.1% QoQ CC respectively while Tech & Health declined by 2.6% & 3.8% QoQ CC. Geography wise Americas 1 declined by 2.1% QoQ CC while Americas 2, Europe & APMEA grew by 0.9%, 0.6% & 3.1% QoQ CC respectively.

Operating Margin:

IT Services EBIT margin improved by 50 bps QoQ to 16.5%, marginally above our and consensus est. of 16.4% & 16.2% respectively. Margin improved due to the tailwinds of operational improvements and rupee depreciation, partially offset by continued investments in business.

Deal Wins:

Deal wins were weak, with TCV of USD 2.59 bn compared to USD 3.37 bn in Q1. During the quarter WPRO won 9 large deal wins with TCV of USD 674 mn, down 58.6% QoQ CC.

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