IGI Logo

Structural Growth Intact; AI Monetisation Drives Differentiation

Q1FY27 results reinforce our positive view on New-age Tech and Software, with the sector witnessing a healthy underlying demand, a strong deal momentum and increasing adoption of AI-led platforms. Although quarterly performance remained mixed across companies, particularly due to project execution delays and seasonality, the medium-term growth outlook remains intact, supported by expanding addressable markets, platformisation and improving monetisation. AI is emerging as the key structural growth driver, with companies increasingly moving from traditional software and systems of record towards AI-native platforms and systems of intelligence. Overall, we believe the sector is entering a phase where AI adoption, platformisation and monetisation are increasingly translating into scalable revenue growth and improving profitability. We therefore favour companies with visible growth pipelines, differentiated AI capabilities, strong platform/IP-led offerings and scope for margin expansion. Our top investment ideas remain Meesho, Fractal & Aurionpro Solutions.

1. Nazara Technologies (NAZARA) | Rating: ADD | TP: INR 400 | Upside: 13.4%

NAZARA reported Q1FY27 revenue of INR 4.29 Bn (-14.0% YoY; +7.8% QoQ), impacted by the deconsolidation of Nodwin; however, comparable revenue (excluding Nodwin) increased ~9% YoY, reflecting a healthy underlying demand. Gaming remained the key growth engine, with revenue rising 14% YoY to INR 2.75 Bn, supported by a strong performance from Kiddopia, Fusebox and Animal Jam, while all gaming businesses remained EBITDA-positive. EBITDA margin stood at 10.8%, reflecting elevated user acquisition spending and softer profitability in AdTech. We expect growth to accelerate from H2FY27, supported by Bluetile & BestPlay consolidation, expanding global gaming franchises and continued execution across the gaming portfolio. While acquisition funding and integration remain key monitorables, we believe NAZARA is well-positioned to deliver long-term value through disciplined capital allocation, expanding global gaming IPs and improving operating leverage. We value the company using the SOTP method and arrive at a TP of INR 400 (maintained), thus assigning ‘ADD’ rating

2. Meesho (MEESHO) | Rating: BUY | TP: INR 220 | Upside: 15.0%

Meesho reported a strong Q1FY27 operating performance, with Annual Transacting Users (ATU) scaling-up to 274 Mn (+28.5% YoY) and Annual Transacting sellers to 1.04 Mn (81% YoY), reinforcing its position as India’s largest E-commerce platform by user base. Order volumes grew 29.0% YoY, while order frequency improved to 10.3x during the quarter, indicating rising user engagement. NMV increased by ~34% YoY to INR 116.1 Bn, supported by an improvement in the GMV-to-NMV conversion ratio to 61.0% (vs. 57.3% last year). Through the Kirana Club acquisition and the development of local supply chains, Meesho is positioning itself to capture the massive grocery and staples market. Over the long term, we believe this initiative could enable the company to replicate its asset-light, low-cost logistics model (similar to Valmo) in grocery delivery, significantly expanding its TAM, particularly in value-conscious and underserved regions. Contribution margin improved to 4.6% of NMV in Q1FY27 (vs. 4.0% in Q4FY26), driven by continued logistics efficiencies through Valmo, Meesho’s in-house logistics network and also through third-party logistics partners. Accordingly, we raise our FY28 revenue estimate to reflect the stronger growth outlook and upgrade the stock to ‘BUY’ with a target price of INR 220, based on 4.0x FY28E EV/Revenue

3. Indiamart Intermesh (INMART) | Rating: BUY | TP: INR 2,060 | Upside: 31.3%

INMART reported a steady revenue growth of 11% YoY, primarily driven by improved realisation from paying suppliers despite continued weakness in subscriber addition. The company continues to focus on improving productmarket fit, enquiry quality and retention economics, avoiding low-quality customer acquisition which could increase CAC and reduce LTV. INMART is enhancing its marketplace through trust infrastructure, AI-based matching, payment protection, pricing initiatives and diversified buyer acquisition. Overall, we expect the company to focus on improving marketplace quality before reigniting subscriber growth, with churn stabilisation, higher buyer activity and supplier recovery driving growth re-acceleration. We retain our ‘ADD’ rating but lower our multiple to 20x (earlier 22x) to arrive at a TP to INR 2,060, as a meaningful re-rating is contingent on sustained improvement in subscriber addition, buyer traffic and marketplace activity.

4. Aurionpro Solutions (AUPS) | Rating: BUY | TP: INR 1,100 | Upside: 53.1%

AUPS reported a weaker-than-expected Q1FY27 performance, with revenue conversion impacted by seasonality, higher input cost, project execution delays and geopolitical disruption in the Middle East. The Banking & Fintech segment reported revenue of INR 2,010 Mn (+4.7% YoY), while the Technology Innovation Group (TIG) segment grew 8.3% YoY to INR 1,570 Mn. Despite the execution-led softness, deal momentum remained robust, with the company securing multiple marquee wins, including its largest-ever US contract (USD 33+ Mn). The order book remained healthy at INR 19.5 Bn at the end of Q1FY27 (+8.3% QoQ, +33.6% YoY), implying a healthy 1.4x LTM book-to-bill ratio. Additionally, the data center business is expected to witness a meaningful ramp-up from Q2, with a projected stronger execution in H2FY27 supported by capacity expansion, a robust project pipeline and large deployments. We lower our FY27E/FY28E earnings estimate to factor in delayed project ramp-ups and continued investments in Software 2.0. However, we retain our ‘BUY’ rating and 22x FY28E EPS multiple, as the current valuation remains compelling (PEG <1x).

5. Oracle Financial Services Software (OFSS) | Rating: ADD | TP: INR 11,750 | Upside: (0.4%)

OFSS reported a strong Q1FY27, with revenues rising 60.0% YoY & 51.3% QoQ, driven by the recognition of a landmark perpetual license deal valued at about USD 100 Mn with a US-headquartered global bank. Beyond this one-off, underlying execution remained healthy, supported by multiple product wins, a robust pipeline and 16.0% YoY growth in Remaining Performance Obligations (RPO), strengthening medium-term revenue visibility. We expect growth to normalise over the next few quarters as the large license deal annualises, while sustained deal momentum and a healthy pipeline should continue to support medium-term growth. We remain constructive on OFSS' long-term fundamentals, supported by its leadership in banking software, expanding AI capabilities and strong cash generation. Healthy RPO growth (+16% YoY) and a robust product pipeline provide confidence in medium-term revenue visibility. Following the recent stock outperformance, we see limited scope for a meaningful near-term re-rating and therefore revise our rating, from ‘BUY’ to ‘ADD’. Our FY26–29E Revenue/EBITDA/PAT CAGR estimate stands at 12.6%/17.1%/18.1%, with a revised TP of INR 11,750, on the basis of 28x FY28E EPS (maintained).

6. Intellect Design Arena (INDA) | Rating: BUY | TP: INR 1,050 | Upside: 44.1%

Intellect reported a strong growth in License-linked revenues, which grew by 17.5% YoY, primarily driven by a good increase in License revenues, up 28.7% YoY. Overall deal momentum remained steady, with 19 new deals signed, including 7 Destiny deals. The deal pipeline remained robust, growing 15% YoY to INR 130.1 Bn, while the company crossed 100+ Destiny deals, reinforcing confidence in sustaining medium-term growth. We expect License-linked Revenues, currently accounting for 54% of revenue, to gradually scale up to 60% as the company sharpens its focus on expanding Subscription revenue through Purple Fabric. The company plans to invest INR 1.8–2.0 Bn in R&D in FY27, primarily focussed on AI and Purple Fabric. Factoring in the ongoing investment phase and a gradual margin recovery, we reduce our target multiple to 22x (from 24x), while maintaining our ‘BUY’ rating with a revised Target Price of INR 1,050 on the basis of FY28E EPS, supported by a healthy deal momentum and long-term platform-led growth visibility.

7. Fractal Analytics (FRACTAL) | Rating: BUY | TP: INR 1,080 | Upside: 31.8%

FRACTAL delivered a resilient Q1FY27 despite a sharp slowdown in the TMT vertical, with underlying business fundamentals remaining robust. Strong client mining (117% NRR), healthy growth in platform businesses led by Fractal Alpha and Qure.ai and early commercial traction for Cogentiq validate the company's platform-led AI strategy and strengthen confidence in sustainable growth. AI spending is increasingly shifting from experimentation to enterprise-wide transformation, positioning FRACTAL well to capture higher-value, recurring opportunities across AI platforms and business transformation. While continued investments in R&D, leadership and AI capabilities projected to keep near-term margin under pressure, we view these as essential to strengthening FRACTAL's competitive moat and long-term earnings trajectory. We remain constructive on the medium-term outlook, supported by improving execution, an anticipated stronger H2FY27 revenue outlook and accelerating enterprise AI adoption. We value the company using a SOTP methodology and, for sanity check, we have also performed DCF; to arrive at a target price of INR 1,080, while maintaining our ‘BUY’ rating

8. Datamatics (DATA) | Rating: ADD | TP: INR 920 | Upside: 7.8%

Digital Operations remained the key growth engine, with revenue up 16.1% YoY, supported by the TNQTech integration and a healthy 12–14% growth in Digital Content. Digital Technologies grew a more modest 6.1% YoY, with profitability constrained by INR 40–50 Cr of annual AI/R&D investments, while Digital Experiences declined 5.3% YoY, albeit with early sign of recovery from recent deal wins. With ~60% of FY27 wins AI-led, DATAMATICS is increasingly transitioning from traditional BPM towards higher-value, AI-enabled offering. The management remains confident of high-single-digit FY27 growth and ~20% EBITDA margin; however, sustained acceleration will depend on faster monetisation of AI investments and recovery in Digital Experiences, with inhouse automation and GCC adoption remaining key structural risks. We remain constructive on the AI-led repositioning, while Digital Experiences recovery, AI monetisation and rising in-house/GCC competition remain key monitorables. We maintain our TP of INR 920 and ‘ADD’ rating, valuing Datamatics at 19x FY28E EPS.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer

SEBI Registration no.: INZ 000160131