IGI Logo

PSYS reported a robust operating performance in Q4. Revenue growth of 4.5% QoQ CC was in-line, while EBITM of 15.6% was ahead of our estimate. Growth was predominantly led by BFSI and Hi-Tech while HLS stood flat. Deal-win TCV moderated sequentially to USD517.5mn (book-to-bill: ~1.4x), largely due to the usual seasonality. The management remains confident about growth momentum over the medium term, but macro uncertainty may weigh on the near-term growth trajectory as there is increased caution among clients due to elevated macro and geopolitical uncertainty. The mgmt reaffirmed its aspiration of revenue run-rate of USD2bn by FY27-end and of USD5bn by FY31-end. It targets expanding EBITM by ~100bps in FY26. While uncertainty has increased and the environment is fluid, the mgmt stays focused on execution and building a higher deal pipeline for tackling the tough demand environment. We up FY26- 27E EPS by ~1-3%, factoring in the Q4 performance and lower ETR. Given the rich valuations, we retain REDUCE and TP of Rs5,000 at 36x Mar-27E earnings.

Results Summary

Revenue grew 4.2% QoQ (4.5% in CC) to USD375.2mn, in line with our estimates. Revenue growth was led by BFSI (6.1% QoQ) and Hi-Tech (5.2%), while HLS stood flat (0.4%). Except ROW (-1.3% QoQ), all geographies reported sequential growth – North America (4.2% QoQ), Europe (6.7%), and India (3.1%). EBITM expanded by 70bps QoQ to 15.6%, ahead of our estimate of 15.1%. Margin expansion was driven by improved utilization (20bps), lower SG&A (30bps), currency tailwind (40bps), and higher earnout credit (20bps) albeit partially offset by headwinds from investments in multi-year managed services deals (-40bps). Headcount grew 2.7% QoQ to 24,594. Attrition inched up to 12.9% from 12.6% in Q3. The company declared final dividend of Rs15/share. What we liked: Robust revenue growth; margin beat. What we did not like: Weakness in Healthcare & Lifesciences (excl top-client).

Earnings Call KTAs

1) Clients have become more cautious in their spending given the delayed decisionmaking. The mgmt is however confident of navigating through the uncertain environment and maintaining its growth trajectory. 2) PSYS is participating well in cost optimization and vendor consolidation opportunities. 3) Healthcare is impacted by DOGE, along with cuts in US Aid funding, thereby impacting government-funded healthcare plans. Excl the top client, Healthcare declined sequentially. However, the mgmt is confident about its long-term prospects. 4) PSYS believes that a tough macro environment could incentivize clients to drive growth by adopting SASVA as part of its programs, such as technical debt remediation, tech stat moderation, and product transformation. 5) Utilization is expected to remain range-bound near current levels till the uncertainty recedes. 6) As regards acquisition strategy, the mgmt has highlighted pivots: revenue diversification, capabilityled acquisitions, and expanding horizontal use cases in Gen AI. 7) Agentic workflows are generating significant amount of data, plumbing, and engineering engagements with customers. Data and AI practice grew 56% in FY25.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354