Reduse Datamatics Ltd For Target Rs. 940- Choice Broking Ltd
Mid-single digit organic growth; strong TNQ revenues raises conviction
Mid-single digit organic growth guidance along with strong TNQtech led in-organic revenues to augur well for DATAMATICS in FY26. Key themes playing out will be its growing focus on GCC’s & AI offerings with some AI pilots already getting mainstream. Its AI driven intelligent RPA (Robotic Process Automation) offerings, which can automate complex tasks in larger automation suite is gaining increased client traction. Moreover, aided by Dextara and TNQ integration, the company aims to focus on strategic accounts, geographic expansion, new deals & crossselling. It also aims at leveraging AI offerings through partnerships with Microsoft & Google. We believe the recent operational changes to reflect on improved growth & margin trajectory of DATAMATICS going ahead. Hence we have revised up our estimates & expect the Revenue/ EBITDA/ PAT to grow at 10.8%/ 18.0%/ 13.7% CAGR over FY25–28E. With the improved clarity on growth ahead we have re-rated the stock with Target Price of INR940 (earlier INR585) by maintaining REDUCE based on FY27E & FY28E average EPS of INR 47, implying a PE of 20x (earlier 14x)
Despite growth disappointment, PAT spikes due to lower SG&A
* Reported Revenue for Q1FY26 stood at INR 4676Mn down 6.0% Q0Q (vs CIE est. at INR 4,717Mn).
* EBITDA for Q1FY26 stood at INR 759Mn up 1.8% QoQ (vs CIE est. at INR 712Mn). EBITDAM expanded 124bps QoQ at 16.2% (vs CIE est. at 15.1%).
* PAT for Q1FY26 spiked by 12.2% QoQ at INR 504Mn (vs CIE est. at INR 503Mn) led by margin expansion, higher other income and low finance costs.
DATAMATICS FY26 strong growth to be led by TNQ amidst macro worries
DATAMATICS reported 124bps QoQ EBITDAM expansion at 16.2% in Q1FY26. This was led by lower SG&A costs and cost optimization exercise within Digital Technologies business unit, which reported 590bps QoQ expansion in EBITM at 6.9%. For FY26, DATAMATICS expects 50-150bps YoY EBITDAM improvement, which will be driven by strong cost controls across segments. Amongst business units, Digital operations, which reported stable QoQ EBITM at 16.4% in Q1 would lead the margin expansion in FY26 aided by integration of TNQ revenues. Moreover, with the cost optimization program the EBITM of Digital Technologies unit is expected to improve by 100bps YoY. Digital Experiences, the 3 rd unit reported 640bps QoQ EBITM dip at 6.8% due to client migration to captive centre.
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