The quarter: growth in line, margins the miss

Revenue for the September quarter came in at roughly Rs 68,000 crore in dollar terms, rising 0.5 percent sequentially in constant currency and squarely in line with the brokerage's forecast. The growth was broad: the United Kingdom led geographies at 3.7 percent, North America and Europe edged ahead, and the drag was concentrated in India, down 10.3 percent on project deferrals that management called non-structural. Adjusted profit of about Rs 13,900 crore was flat quarter on quarter and up 7.5 percent from a year earlier, just shy of the brokerage's estimate. Deal signings of some Rs 85,400 crore held the book-to-bill at a healthy 1.3 times, and the board declared an interim dividend of Rs 12 a share. The blemish was the operating margin, flat at 24 percent against a hoped-for 25.

Where the growth came from

The sequential picture by industry was a story of two tiers — a clutch of verticals pulling the firm forward and the regional-markets business dragging hard in the other direction, as the tornado below lays out.

AI: the double-edged sword

Artificial-intelligence services, now running at about Rs 27,600 crore annualised, grew 19.2 percent sequentially and crossed 10 percent of total revenue for the first time. Yet the brokerage draws a sober conclusion: non-AI revenue slipped during the quarter, and the productivity deflation that AI brings to traditional services continues to outweigh the incremental revenue the technology generates. For now, in Motilal Oswal's reading, AI is capping near-term growth even as it reshapes demand. Management framed marquee engagements such as the Porsche and Best Buy deals as AI-led transformation rather than mere productivity plays, and pointed to agentic control planes, AI governance and token-cost optimisation as the emerging spending themes.

Why margins are under pressure

The margin held flat despite, not because of, management effort — continued investment in AI capabilities, hiring and partnerships, together with higher subcontracting costs, near-term skill gaps and visa-related constraints, absorbed the operating leverage. Looking ahead, the proposed MHP acquisition is expected to dilute margins by roughly 50 basis points in the second half, with furloughs adding seasonal drag. On that basis the brokerage has lowered its FY27 and FY28 margin estimates by 40 and 20 basis points to 24.3 and 24.7 percent, and shaved earnings by about 1.6 and 1.5 percent. It now sees dollar revenue and earnings compounding at roughly 2 and 5 percent over FY26 to FY28 — a modest trajectory that the margin caveats bracket.

The estimates

Valuation: paying a fair price for a cash machine

The investment case rests less on near-term acceleration than on the quality of the franchise. Even on trimmed numbers, Motilal Oswal expects a return on equity above 45 percent through FY28, a payout near 75 percent of earnings and a dividend yield climbing toward 5.8 percent. At roughly 13 times FY28 earnings the stock is hardly demanding for a business of this cash generation, and the brokerage values it at 15 times FY28 earnings to arrive at a target of Rs 2,400, about 16 percent above the current price. For investors, the message is a patient one: accumulate a defensive compounder while the AI transition works through the model, rather than chase a growth inflection that is not yet in the numbers.