IGI Logo

Growth Momentum Sustains; FY27 Outlook Remains Strong

TECHM reported strong Q1FY27 performance with revenue growth of 2.6% QoQ CC (2.5% organic), well ahead of our and consensus estimates of ~1.0% QoQ CC, while EBIT margin expanded 60bps QoQ to 14.4% (vs 14.1% PLe). The beat was aided by earlier-than-expected ramp-up of a large European automotive engagement. ExManufacturing, the revenue growth was soft and stood at ~1.1% QoQ CC growth (our assumption) due to Comviva seasonality. Deal momentum remained robust with quarterly TCV of USD 1.08 bn, taking LTM deal wins to a record USD4.06bn (+37.5% YoY), providing strong revenue visibility over the coming quarters. Management reiterated confidence in achieving revenue growth above peer’s average in FY27E, supported by a healthy order book and timely ramp ups. Q2 is likely to have an incremental headwind from normalization of the accelerated Europe automotive program, the headwind is likely to get compensated against a large deal (Comms) ramp up and overcoming Q1 seasonality. On margins, Project Fortius, operating leverage and other margins kickers are expected to more than offset continued investments in AI capabilities and talent, hence the management remains confident of achieving ~15% EBIT margin in FY27E. Driven by the stronger-than-expected execution, improving growth visibility and robust deal momentum, we revise our FY27E/FY28E CC revenue growth estimates to 6.0%/5.4% (from 4.8%/5.8%) while increasing our EBIT margin estimates to 14.8%/15.1% (from 14.5%/15.0%), resulting in an EPS upgrade of ~2.2% for both FY27E and FY28E. We assign 20x (earlier 19x) to arrive at a TP of INR 1,780 (INR 1,660). Retain BUY

Revenue:

TechM reported another quarter of improved performance, delivering revenue growth of 2.6% QoQ in CC, ahead of our and consensus est. of 1.0%QoQ CC growth. Growth was largely driven by Manufacturing, BFSI, Health & Retail which grew by 9%, 2.7%, 2.5% & 1.2% QoQ respectively while Comms & Tech declined by 1.3% & 1.7% respectively. Geographically, Europe & RoW grew by 8.1% & 0.6% QoQ while Americas declined by 0.1% QoQ

Operating Margin:

Margin continued to grow with another qtr. of strong expansion. EBIT margin improved by 60 bps QoQ to 14.4%, ahead of our and cons. est. of 14.1%. The margin expansion was largely driven by volume growth and savings from Project Fortius, partially offset by Comviva seasonality and business mix.

Deal Wins:

Deal wins were strong, with the company recording LTM deal wins of USD 4.06 bn. In Q1 TechM secured net-new deal wins of USD 1.1 bn (3rd successive qtr. Of US$ 1 bn+ win).

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271