Saksoft Ltd - Weakness across top clients drags earnings - Company Update

Saksoft’s Q4FY26 numbers were below our estimates on account of continued stress seen among top 2 clients. Though the company added a client in the ‘USD 0.5mn’ category, overall spends continue to remain under pressure. We expect recovery from H2FY27, with a strong pipeline (USD 25mn) aiding growth.  EBITDA margins came in-line with our estimates at the lower end of the guided range of 18-19%. Going ahead we expect margins to settle in the range of 17-18%, on account of continued investments in AI capabilities, front-end sales and leadership hiring. Saksoft closed FY26 with a strong net cash position of ~Rs 2.5bn, which we believe provides optionality for an acquisition which could add USD 8-10mn (Rs 0.8-1bn) in revenue. We have cut our earnings estimates by 3%/6% for FY27/28e and slashed our target multiple from 22x to 16x on account of slower growth and deteriorating margin profile. Considering the recent correction in the stock, we reiterate our ‘BUY’ rating.

Revenue de-growth despite currency tailwinds:

The company reported revenue of Rs 2.5bn a growth of -0.8%/3.7% QoQ/YoY, in-line with our estimate of Rs 2.6bn. In CC terms, company de-grew by 2% QoQ. BFS witnessed decline of 8.7% QoQ, on account of lower spends by top 2 clients. Profitability declined across segments due to heightened pricing pressure and the pass-through of AI-driven productivity gains to clients. Company added one client in the ‘USD 0.5mn’ category (Logistics) and moved one client from ‘USD 0.5mn to USD 1mn+’. We expect CC growth to be muted in Q1FY27e as spends from top clients continue to remain under pressure.

Margins likely to moderate in near term:

Saksoft reported EBITDA margin of 18.2% in Q4FY26 (+301bps YoY). The improvement was primarily driven by lower SG&A costs, new deal wins from Hi-tech vertical coming at higher margins and muted third-party charges. We expect margins to moderate by 100bps across FY27/28E on account of higher SG&A spends, aggressive hiring for AI talent and meaningful addition to the sales team across US & UK. Utilisation for the quarter stood at 83%, we expect it to peak out near 85% over the coming quarters. DSO improved by 11 days to 42 in FY26, driven by stronger collections in H2FY26.

Outlook:

Management indicated the pipeline has expanded to ~USD 25mn (vs ~USD 5mn six months ago), driven by stronger sales execution and increased participation in large deals. However, delay in decision making on account of AI-led features/productivity is dragging the overall sales cycle. We expect Saksoft's CC revenue growth to moderate to high single digits, below its historical 10–12% run-rate, as deal momentum across the broader IT services space remains subdued. Margins would continue to remain under pressure as company plans to increase investments in AI and anticipated increase in competition in mid-market space. Saksoft’s “String of pearls strategy” has helped its growth over the past 5 years and we believe any large acquisition would lead to a re-rating.

Valuation, View and Risk:

We cut our FY27/28E earnings estimates by 3%/6%, on account of continued weakness seen in Q4FY26. We have also cut our target multiple from 22x to 16x, in-line with other IT services peers. We expect Saksoft to deliver Revenue/EBITDA/PAT CAGR of 10.6%/12.4%/13.2% over FY25-FY28E, supported by recovery seen from H2FY27E. Rolling over our estimates to FY28E, we arrive at a TP of Rs 225 (vs Rs 285 earlier). Though we have reduced our estimates and multiple, CMP factors in most of the negatives and trades at an attractive valuation. Consecutively, we maintain ‘BUY’.

Key risks: 

1. Slowdown in any of the 4 key segments for the company
2. Lower spends by SMBs in US & Europe
3. Continued spending decline across top clients and inability to win new deals

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

*CMP is as per report published date

Click to download the full Saksoft Ltd Q4FY26 Company Update

Analyst:

• Vinay Menon - Senior Research Analyst, Institutional Equities (NISM-201600112117)
• Miloni Mehta - Research Associate, Institutional Equities (NISM-201800127664)

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FAQs on Saksoft Ltd Q4FY26 Company Update

Here are key investor questions addressing near-term challenges, growth outlook and valuation based on our institutional equity research perspective.

1. Why did Saksoft’s Q4FY26 earnings decline?

Earnings were impacted by lower technology spending from top BFSI clients and delays in deal closures amid cautious enterprise spending.

2. What is driving Saksoft’s future growth outlook?

The company’s expanding deal pipeline, AI-focused capabilities and stronger sales execution are expected to support recovery from H2FY27.

3. How are AI investments impacting Saksoft?

Saksoft is increasing investments in AI talent, leadership hiring and front-end sales, which may pressure margins in the near term but strengthen long-term competitiveness.

4. Does Saksoft have acquisition plans?

With a strong net cash position, the company has flexibility to pursue acquisitions that could enhance revenue growth and market positioning.

5. What are the key risks for Saksoft?

Key risks include prolonged weakness in client spending, slower deal conversion and increased competition in the mid-market IT services segment.

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