Target: ₹760

CMP: ₹617.80

Datamatics Global Services Ltd reported muted revenues at ₹369.30 crore (marginally below our estimates), down 2 per cent q-o-q and 0.9 per cent y-o-y. The decline was due to slow decision-making of large deals in Western markets. The revenue was broad based across segments with Digital Operations segment growing 4.9 per cent y-o-y.

The company reported EBIT of ₹43.70 crore, significantly down 11.9 per cent q-o-q and 12.9 per cent y-o-y. Reported consolidated PAT fell to ₹41.30 crore (-10 per cent y-o-y). The company added 12 new clients in Q3-FY24. It has a robust pipeline of $245 million.

Robust pipeline, push towards AI first and organisational re-shuffling are identified as the growth drivers. However, given the macro-environment challenge and delays in discretionary spending, it has guided for 4.5-5 per cent revenue growth for FY24. Management expects Q4 to be the strongest (11-12 per cent growth) due to cyclicality and is confident on seeing ramp ups from the client who prematurely closed the deal.

We expect Revenue/EBIT/PAT CAGR of 14.4/19.5/19.2 per cent respectively over FY23-FY26. We maintain Add to arrive at a target price of ₹760 implying a P/E of 14x on FY26 EPS of ₹54.