Prabhudas Lilladher's research report on Tata Technologies
The Services revenue de-growth (7.6% CC QoQ) was below our estimates (5.1% CC QoQ), largely due to delayed ramp ups and slower decision making within automotive vertical. Although the aerospace momentum continued through Q1, the weakness in the Heavy-Machinery segment led the decline (4.7% QoQ) in non-Auto business. The management anticipates recovery in Q2 on the back of strategic deals signings, while early green shoots are visible in term of improved client sentiment and robust order book, hinting to a better H2 over H1. We believe, with improved client confidence, the earlier investments that were kept on hold would get prioritized first, while the new projects would continue to be pushed for further clarity on the trade war. Given the Q1 drag and volatility in the non-Auto business, the ask-rate for the Service business seems to be meaningfully high (~5% CQGR) to deliver flat growth in FY26. The reported margins were tad below our estimates by 30bps QoQ due to lower employee utilization and operating de-leverage. We are keeping our margin estimates broadly unchanged, while baking in revenue decline of 3.0% and 1.2% for Service/Consol business in FY26E followed by 11.5% growth in FY27E for both Service/Consol.
Outlook
We are assigning 28x PE to FY27E, translating a TP of 570 and maintain our SELL rating.
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