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Near-term Headwinds Persist; Risk-reward Remains Unfavourable:

Q1FY27 was broadly in line, with AI investments, wage revisions and deal ramp-up cost weighing on margin amid a challenging demand backdrop. While AI continues to expand the long-term opportunity, it is accelerating the shift in enterprise spending towards AI, data and cloud, while compressing demand for traditional IT and BPO services. Healthy deal wins and a robust pipeline support medium-term revenue visibility; however, prolonged decision cycles, pricing pressure and continued AI investments are likely to keep near-term growth and margin recovery gradual. We, therefore, trim our FY27/FY28 earnings estimate, reflecting a slower growth recovery and a more gradual margin improvement trajectory. At the current valuation, we believe the risk-reward remains unfavourable and assign ‘REDUCE' rating with a revised TP of INR 170 (earlier INR 185), based on 12x FY28E EPS.

Margin Miss and Weak Guidance Offset Healthy Large Deal Momentum

* WPRO reported Q1FY27 IT services revenues at USD 2.61 Bn, down 1.4% QoQ and up by 1.0% YoY, (vs CIE estimate of USD 2.64 Bn), while, in CC terms, growth stood at -1.2% QoQ and +0.9% YoY

* EBIT stood at INR 39.2 Bn, down 6.6% QoQ and 9.7% YoY (vs CIE estimate of INR 36.5 Bn). Operating (EBIT) margin came in at 16.0% for Q1FY27, down 133 bps QoQ and 16 bps YoY (vs CIE estimate of 14.7%)

* PAT for the quarter came in at INR 33.6 Bn, down by 4.2% QoQ and up 0.6% YoY

AI-led Demand Remains Healthy; Macro Uncertainty Delays Recovery:

IT Services revenue declined 1.2% QoQ, reflecting continued weakness in the Americas and slower discretionary spending, although Technology & Communications (+10.8% YoY), Europe (+6.0% YoY) and APMEA (+13.5% YoY) remained resilient. Clients continue to prioritise investments in AI, data, cloud modernisation and cyber security, while legacy IT and BPO spending remain under pressure as AI-led productivity reshapes enterprise budgets. Order booking remained healthy at USD 3.4 Bn, including USD 1.6 Bn of large deals across 13 engagements, providing healthy revenue visibility despite longer decision cycles. The management expects demand to improve gradually as AI-led transformation spending accelerates, although it guided Q2FY27 revenue between -1.5% and +0.5% QoQ CC, reflecting ongoing macro uncertainty and geopolitical risks. We expect growth to remain modest through FY27 before improving as largedeal ramp-ups and AI-led transformation projects gain scale.

Margin Faces Near-term AI Investment Headwinds; Recovery to be Gradual:

IT Services EBIT margin stood at 16.0%, declining 120 bps YoY, affected by annual wage revisions, ramp-up cost on previously won large deals and continued investments in AI capabilities. While management reiterated its intention to return to the 17.0–17.5% margin band, it refrained from providing a timeline, given the evolving demand environment and the need to continue investing in AI-native capabilities. Traditional large deals remain pricingcompetitive as AI-driven productivity benefits are increasingly shared with clients, although newer AI advisory and "reimagined AI" engagements offer structurally higher margin. We forecast margin recovery to remain gradual, with operational efficiency, utilisation improvement and AI-led productivity partially offsetting continued investment requirements through FY27E

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