R Systems International Ltd - Margins shine; growth to rebound - Company update
08 May 2026
Companies Updates
R Systems' Q1CY26 results were in line with our estimates. CC revenue growth was muted at 0.5% QoQ, weighed down by ME exposure (Novigo: ~50%), post-acquisition accounting adjustments, and slower deal wins. EBITDA margins came in slightly ahead our estimates at 17.5% (our estimate - 17.2%) on lower SG&A; but we expect it to settle at 16.4–16.6% by H2CY27 as AI investments ramp up. However, ACV of USD 82.4mn (+7.7% QoQ) signals strong deal momentum, with AI-led deal wins adding confidence. Our earnings estimates for CY26/27E are broadly unchanged. We trim our target multiple due to evolving quality of deals (including concerns relating to size of deals) and de-rating across the sector led by AI disruption risks. Assigning 20x CY27e EPS, we arrive at a TP of Rs 470. Considering recent fall in stock price and attractive valuations, we Retain BUY.
R Systems International Ltd. Stock Price Chart
Muted revenue growth, recovery expected from Q2CY26:
R Systems posted 3.5%/29.9% QoQ/YoY revenue growth in rupee terms. In CC terms, revenue grew 0.5%/22.9% QoQ/YoY. Assuming Novigo’s contribution to be ~USD 5-5.5mn, rest of the business reported de-growth of 2.0%+ QoQ. R Systems transitioned Novigo's revenue recognition from gross to net in Q1CY26, which is already factored into our numbers. Novigo was further pressured by ME geopolitical headwinds, which account for ~50%+ of its revenue. Despite near-term drag, ACV momentum points to a stronger CY26 and AI-led deal wins of USD 1–2mn each, reflect early but meaningful progress in capturing the demand from AI led transition from clients.
Margins beat on lower SG&A; Q2 normalization likely:
Margins grew by 60bps /160 bps QoQ/YoY to 17.5% aided by lower SG&A and consolidation of Novigo’s full quarter numbers (22% margin). Utilization has come down to 80.4% and is expected to remain in the similar range, going ahead. Q1 margins came ahead of our estimates, but we expect margins to deteriorate over the next few quarters on account of ramp up in AI investments and acceleration in hiring. Hence, we believe that margins would remain in the range of 16.4-16.6% over next few quarters vs 17.5% in Q1CY26. Other income was higher due to change in accounting policy. Interest costs were higher on account of debenture payment from NCD raised in Q4CY25.
Outlook:
We re-iterate that R Systems will continue to deliver 11-12% CC growth despite the tepid demand environment. Growth would be backed by its AI-led frameworks, strong GTM strategy and presence across Hi-tech enterprises which are quick at adopting AI. Deal wins in the range of USD 1-2mn along with momentum in GCC’s for mid-tier companies would help accelerate the growth. Amidst all concerns related to AI reducing the dependency of enterprises on IT services companies, we believe R Systems will continue to thrive as they focus on discretionary work (over routine work), integrating AI across service lines and deep vertical specialization across its segments.
Valuation, view and risks:
We are factoring 18.1/20.0/19.2% Revenue/EBITDA/PAT CAGR over CY25-28E, which includes contribution from Novigo. Our estimates for CY26/27E are broadly maintained, as Q1 trends were largely in line with expectations. However, we have cut our target multiple to 20x (from 27x earlier), reflecting a more cautious stance on the broader IT services sector. The lowering of valuation multiple captures risks around AI-driven disruption to traditional service models and a prolonged delay in discretionary spending revival. We roll our estimates to Q1CY28e EPS and arrive at a TP of Rs 470. Retain BUY. Key risks - Any new update from US based frontier model companies that threaten the offshore model, delayed decision making from clients and lower spends from existing top 50 clients.
Company website: https://www.rsystems.com/
| Rating | BUY |
|---|---|
| CMP | INR 305 |
| Target Price | INR 470 |
| Upside | 54% |
Click to download the full R Systems International Company Update
Analyst:
- Vinay Menon - Senior Research Analyst, Institutional Equities (NISM-201600112117)
- Miloni Mehta - Research Associate, Institutional Equities (NISM-201800127664)
FAQs on R Systems Ltd. Q1CY26 Company Update
1. What drove R Systems’ Q1CY26 performance?
Performance was supported by AI-led deal wins, strong ACV growth and stable margins, although revenue growth remained muted due to Middle East exposure and slower discretionary spending.
2. Why are margins expected to normalize?
The company is increasing investments in AI infrastructure, hiring and platform capabilities, which could moderate EBITDA margins over the coming quarters.
3. What is supporting future growth for R Systems?
Strong AI adoption, GCC opportunities, mid-tier enterprise demand and increasing digital transformation spending are expected to support long-term growth.
4. What are the key risks for R Systems?
Key risks include slower client spending, AI-led disruption in traditional IT services and delays in large enterprise decision-making.
5. What is the outlook on the stock?
The company maintains a positive medium-term outlook backed by AI-led deal momentum, strong execution and attractive valuations despite near-term sector volatility.
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IFGL Refractories Ltd. - Domestic focus continues to payoff; overseas improving gradually | Company Update
We decrease target price to Rs 280 (previously Rs 300) but maintain BUY rating. The change in TP is mainly due to cut of earnings estimates. IFGL delivered another quarter of strong standalone growth as its domestic-focused strategy continues to gain...
Borosil Ltd. - Glassware ignites growth; levers to power margins | Company Update
We reiterate our BUY on Borosil Ltd and revise our target price upwards to Rs. 460 (vs. Rs. 420 earlier), driven by strong demand momentum and emerging structural growth and margin levers. The company continues to deliver robust growth in its glasswa...
Venus Pipes & Tubes Ltd. - Export and welded drives confidence | Company Update
We increase Target Price to Rs 2040 (previously Rs1,950) and retain BUY for Venus Pipes & Tubes (VENUS) due to attractive valuations. Increase in TP is primarily due to valuation roll forward. Revenue in 2QFY26 was strong, supported by a sharp re...
ESAB India - Encouraging quarter; growth in focus | Company Update
We retain Buy on ESAB India with TP revised upwards to Rs 6,850 (vs Rs 6,554 earlier) on valuation rollover. The company delivered a strong quarter, with overall growth hinting at signs of recovery supported by margin gains. ESAB continues to o...
The Anup Engineering - All eyes on cash conversion | Company Update
We maintain our HOLD rating on Anup Engineering but increase TP to Rs 2,475 (vs Rs 2,375 earlier) considering steady operational performance and an unchanged growth outlook coupled with valuation rollover. The impact from higher taxes was anticipated...
Rashi Peripherals Ltd – Turns cashflow positive
We retain "BUY" rating with a Target Price of Rs. 505 (vs Rs 525 earlier). Rashi Peripherals ltd reported decent topline growth, on the back of strong sales from the PES segment (PCs, Desktops). Our dealer checks suggest demand is improving for AI-en...
Wonderla Holidays - Chennai on Track; Expansion Visibility Low | MNCL Research Update
We reiterate our HOLD rating on Wonderla Holidays Ltd while revising our target multiple downwards to 18x (from ~20x) and rolling forward our valuation to Q2FY28E. In a seasonally weak quarter, the company delivered a better-than-expected topline, pr...
R Systems International - Strong growth tempered by higher SG&A & RSU costs | MNCL Research Update
We maintain our "BUY" and retain our target price to Rs 620. R Systems delivered higher than expected topline growth (7.9% vs our estimate of 3.5% in INR terms). EBITDA was in line with our estimates / margins dipped 70bps QoQ on the back of higher R...
SJS Enterprises Ltd - Designed to outperform | MNCL Research Update
We revise our target price on SJS Enterprises upwards to Rs1,930 to account for an increase in revenue/ margin estimates, valuation roll-forward to Sept’27E and target multiple expansion. SJS delivered another quarter of strong industry outperforma...
Channel checks - Opalware and Glassware - Borosil Sets the Benchmark in Opalware Retail
We conducted channel checks across key markets in Western and Northern India to gauge demand trends (qualitative aspects) in the Opalware and Glassware categories. We also analysed balance sheet / profitability trends (quantitative parts) across key ...
Goldiam International - LGD Momentum builds; ORIGEM scaling | Company Update
We reiterate our BUY rating on Goldiam International with a target price of Rs. Rs.470. Despite near-term uncertainty around U.S. tariff implications, the company has delivered an exemplary performance driven by robust topline growth and increasing w...
ASK Automotive Ltd – Meets Expectations; ALPS & Aftermarket to Drive Growth | MNCL Research Company Update
We retain ACCUMULATE on ASK Automotive while lowering our target price to Rs 525. The lowering of TP follows downward revision in our revenue and margin estimates, partially offset by valuation rollover. ASK delivered a strong Q2, broadly in line wit...
Sundram Fasteners Ltd. - Steady Domestic Momentum Offsets Export Weakness; upgrade to Accumulate - Company Update
We increase target price to Rs 1085 (previously Rs1030) and upgrade our rating to Accumulate for Sundram Fasteners Ltd. (SFL) due to steep correction in share price. Increase in TP is mainly due to valuation roll forward. SFL’s performance in 2QFY2...
JNK India Ltd – End of Overhang, Execution to Drive Growth | Q2FY26
Our interaction with JNK India led to the following conclusions: JNK India’s legacy low-margin orders (NRL, IOCL) delayed by site and client issues are expected to conclude largely by Q2FY26, with minor spillover into Q3FY26. From Q3FY26, high-marg...
Ratnamani Metals and Tubes Ltd. - Subsidiaries outperform | Company Update
We increase target price to Rs 2710 (previously 2690) and upgrade to Accumulate rating. Increase in target price is due to valuation roll forward. In 2QFY26, the core pipes business saw modest growth as strong offtake was offset by weak realizations....
