A Quarter That Ticked the Right Boxes

IDBI Capital analyst Saptarshi Mukherjee described the September quarter as a clean beat. Dollar revenue grew 2.4% sequentially and 7.2% year on year in constant currency, with organic growth of about 7%. In rupee terms, revenue reached Rs 16,180 crore, up 15.6% from a year earlier, helped by a weaker currency.

Profitability did the heavy lifting. EBIT jumped 40.5% to Rs 2,387 crore as volume growth and Project Fortius savings more than absorbed wage hikes. Net profit rose 31.2% to Rs 1,586 crore, even though the tax rate climbed to 29.9%, or 26.6% excluding a one-time adjustment.

The Final 20 Basis Points

Management's three-year margin plan is all but complete. IDBI Capital argues the remaining distance is the easy part, because pyramid rationalisation, worth 3% to 4% of headroom, is still untapped and AI productivity in fixed-price contracts should keep lifting gross margin for three more years. Management said reinvestment in growth will be balanced against those gains.

Where the Growth Came From

Communications, the largest vertical, grew on the ramp-up of the Orange contract, while retail and logistics posted the sharpest sequential jump. Manufacturing slipped after a large European automotive programme pulled revenue into the prior quarter; management expects a further roughly 0.5% headwind in Q3 before it normalises. BFSI was the laggard at 5.4% in constant currency. By geography, Europe stood out with 16% dollar growth year on year.

Deal Wins Signal Share Gains

Total contract value of about Rs 9,770 crore was spread across verticals and geographies, taking trailing twelve-month wins up 34.8% to about Rs 40,780 crore. Accounts billing more than about Rs 190 crore a year grew 11.7% year on year, faster than the company, which management reads as proof of durable, share-gaining growth.

AI: From Deflation Fear to Wider Scope

Management called the AI deflation debate "warped," arguing that the opportunity lies in wider scope rather than cheaper delivery, and that model pricing power should fade as it did in cloud. Its TechM Helix framework pairs an AI toolchain for every service line with AI transformation for every vertical. Human-plus-agent, outcome-based pricing is gaining traction in telecom and financial services, and the company will start disclosing AI revenue from the second half of FY27.

Estimates, Valuation and the Investor Target

IDBI Capital forecasts EPS of Rs 72.6 in FY27 and Rs 84.9 in FY28, about 4.9% and 3.2% below consensus, which leaves room for upgrades if growth accelerates. Applying 22.4 times FY28 earnings yields the Rs 1,900 target, roughly 15% above the current price and above the 52-week high of Rs 1,850.

Shareholder returns add ballast: a 1:1 bonus issue, an Rs 15 interim dividend and ROCE of 31.2%. Free cash flow of about Rs 1,290 crore was roughly 85% of profit, but management reiterated 90% to 100% conversion for the year.