Allied Digital

Allied Digital reported consolidated revenues of ₹247 crores for Q3 FY26, marking a 12% year-on-year increase and representing the highest quarterly revenue in the company's history. Year-to-date revenue for the nine months ended December 31, 2025, reached ₹700 crores, up 16% YoY from ₹603 crores in the prior year, positioning the company close to its stated target of ₹1,000 crore in annualized revenue. PBT before exceptional item^📎s grew 13% YoY to ₹23 crores, while reported PAT for the quarter was ₹14 crores, which would be ₹20 crores on an adjusted basis after accounting for one-time^📎 items.

The company's international operations demonstrated strong momentum, growing 26% year-on-year in Q3 FY26. Revenue from non-Government customers increased by 13% YoY, outpacing the 12% YoY growth from Government segments. Conversely, India operations experienced a 5% year-on-year decline in stand-alone revenues for Q3 FY26, primarily due to the absence of significant project milestones and delays caused by state elections. Management anticipates renewed billing in India in the next quarter as project milestones are completed, with a focus on Western Railways, metros, and Maharashtra.

Allied Digital secured healthy order flows exceeding ₹250 crores during the quarter, comprising a mix of new wins, renewals, and follow-on orders. The company highlighted two significant wins totaling ₹1,000 crores earlier in the year, with billing expected in 2026 and 2027. The pipeline quality is improving with larger deal sizes, longer tenures, and broader scopes. Key focus areas for upcoming government orders include Western Railways, metros, and Maharashtra, with expectations of better and larger order wins in the next 2-3 quarters, contributing to the target of ₹250 crore quarterly run rate.

The company has adopted an 'AI-first' strategy, integrating AI into all its services and developing its own Agentic AI platform. Three deals in Q3 FY26 leveraged AI, contributing to improved productivity and profit margins, although customer benefits are currently seen slowly as they move from proof-of-concept. Allied Digital is actively involved in architecting, designing, and implementing data centers across India, with opportunities arising from sovereign data centers, intelligent infrastructure, and AI-based services. The recent Union Budget's focus on digital infrastructure, AI, and data centers provides a supportive backdrop for their 'game of skill' approach.

While gross margins are improving quarter-over-quarter, the translation to EBITDA level has not been fully realized, with EBITDA growing 4% YoY to ₹26 crores. Management acknowledged that investments associated with acquiring large customers, including team capabilities and compliance activities for multi-country contracts, can temporarily burden EBITDA. However, the company aims to improve operational costs and expects better margins as larger Smart City implementation projects transition into the Operations & Maintenance (O&M) phase, where gross margins can reach double digits upwards of 20%.

The company is actively addressing audit qualifications related to the physical verification of fixed assets and inventory, and old debtors (over 3 years old). A provision of ₹1.3 crore was recognized for New Labour Codes as an exceptional item^📎, and ₹4.8 crore for prior year taxation. Crucially, Allied Digital plans to convert a loan provided to its US subsidiary (Allied Inc.) into equity by March 31, 2026, to permanently resolve a recurring audit qualification. These actions are aimed at enhancing financial transparency and governance by the fiscal year-end.

Allied Digital maintains a conservative 'mid-teens' growth target for FY27, noting that a single large contract could potentially push growth to the mid-20s. The company is confident in its ability to deliver sustainable and profitable growth, supported by a healthy order book and improving visibility on execution. Management reiterated its commitment to achieving ₹1,000 crore in annual revenues in the near future, underpinned by comprehensive transformation across governance, human capital, and sales/marketing frameworks, ensuring the organization remains agile and resilient.