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 RSU and SG&A expenses. Discretionary spends continue to be tepid in US but the company is seeing traction from new deal wins, GCC projects in India and higher spend from the existing clients. We believe improvement in discretionary spends in the US, coupled with higher spends in Cloud and AI will be a positive catalyst for R Systems and will drive its revenue and earnings higher over CY26E/CY27E.

Robust revenue growth on the back of deal wins

R Systems posted 7.9% QoQ / 12.3% YoY revenue growth in INR terms. In CC, revenue grew 5.9% QoQ / 7.8% YoY. The co. continues to win deals in the US$ 2-5 mn+ space from small to mid-level companies (500 mn$+ revenue).  Spends from their top client and top 10 clients has improved considerably after many quarters and we expect this trend to continue into CY26e. R-Systems is making strong headroom on the AI front with Optima AI. They have developed 25 agentic AI tools and 12+ agents for SDLC. The co. has added 6 logos this quarter with most of them being in the range of US$2-5 mn. We expect the co. to continue its growth momentum in Q4CY25e, despite it being a seasonally soft quarter.

EBITDA margins to remain at the lower end of 15-16%

Margins dipped by 70 bps QoQ and 90 bps YoY to 14.5% on the back of higher RSU costs (0.81 mn$ vs 0.57 mn$), higher SG&A expenses (10.6 mn$ vs 10.1 mn$) and legal fees for the Novigo acquisition (Rs 15 mn). Utilization continues to be healthy at 82.2%, despite employee strength going up by 150+. DSO was at 58 days vs 53 days in Q3CY24.  

Outlook:

We believe R Systems is starting to deliver on the growth front on the back of mining efforts, deal wins and momentum in GCC’s for mid-tier companies. Recognition as a leader in Everest Group’s Software Product Engineering Services (Mid-market) reinforces R Systems’ strong industry position. R Systems with its right partnerships, strong farming & hunting engine and past record of deal wins stands to benefit from the revival in IT spends.  

Valuation and view:

We are factoring 24.5%/26.5%/20.3%Revenue/EBITDA/PAT CAGR over CY25-27E, which includes the contribution from Novigo. We have revised our topline estimates on the back of improving demand and cut our margin estimates on the back higher SG&A. We have retained our target multiple at 30x Q3CY27e PE, resulting in a TP of Rs 620. Retain BUY. We believe any improvement in discretionary spends in the US will positively impact R Systems and could lead to a re-rating for the stock. Key risks:  Delayed recovery in discretionary spends, softer existing-client demand, and weak deal wins.

Company website: https://www.rsystems.com/

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)

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