Expleo Solutions Limited — Q2 FY26 earnings call

Call held 14 Nov 2025

Management summary

Expleo Solutions reported a strong Q2 FY26, with robust revenue growth of 8.9% QoQ and significant EBITDA margin expansion to 17.1%. Growth was driven by digital and engineering services, particularly in BFSI and enterprise verticals, supported by AI investments and operational efficiencies. The company is actively pursuing M&A opportunities and maintains a positive outlook for FY27, despite rising attrition and anticipated furlough impacts in Q3 FY26.

Highlights

  • Operating Revenue for Q2 FY26 grew 8.9% QoQ to INR 2,827 million, and 9% YoY to INR 2,827 million.

  • EBITDA margin expanded to 17.1% in Q2 FY26 from 12.8% in Q1 FY26, driven by operational efficiency and revenue growth.

  • Constant currency operating revenue grew 6% QoQ to INR 2,752 million.

  • Digital services grew 10% and Engineering services grew 7% QoQ, with digital services now comprising over 53% of total digital and QA services.

  • Cash position stood at INR 303 crores as of September '25, up from INR 276 crores in September '24.

Concerns

  • Attrition has gone up due to market recovery, requiring measures to keep the team motivated.

  • The auto vertical continues to see degrowth with no short-term or mid-term recovery expected due to various market pressures.

  • Q3 FY26 is expected to be a 'high furlough period' which may impact performance.

Key financials

2 periods

Headline

  • Operating Revenue
    2,827 Mn
    YoY +9% QoQ +8.9%
  • Operating Revenue (CC)
    2,752 Mn
    YoY +2.4% QoQ +6%
  • Total Income
    2,954 Mn
    YoY +8.6% QoQ +10.8%
  • EBITDA Margin
    17.1%
  • Profit After Tax Margin
    14.6%

H1

  • FY26 Operating Revenue
    5,423 Mn
    YoY +6%
  • FY26 Operating Revenue (CC)
    —
    YoY -0.3%
  • FY26 EBITDA Margin
    15%
  • FY26 EPS
    ₹38.78
    YoY +1.4%

What they filed

Q1 FY27: revenue up 12.3%, net profit up 70.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue259 258 256 260 283 +9%279 +8%286 +12%292 +12%
EBITDA42 39 40 30 47 +12%46 +18%43 +8%42 +40%
Net profit35 20 24 20 40 +14%22 +10%42 +75%34 +70%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

low confidence

Pipeline

deal pipeline tcv

Good healthy pipeline for 2026

Management noted a good healthy pipeline for 2026, indicating positive future prospects.

Source: Prepared remarks

Capital allocation

high confidence
  • M&A Deal Acquisition · Announced

    To supplement skills where Expleo is not strong, either from an industry, geography, or service line point of view. The acquired asset should be a complementing service and cut across industries.

    On M&A front, as I updated last time, we have been evaluating several assets and finally narrowed down to 2 assets, where we have just be commencing the due diligence. And this process will take at least 1.5 months and by Jan, we will know about this.
  • Liquidity Cash ₹303 Cr Cash position as of September 2025.
    Cash position stood at INR303 crores as of September '25 versus INR276 crores as of September '24.

Guidance & targets

Revenue

  • Revenue Growth Revenue · FY26 · Medium confidence high single-digit growth
    No, current fiscal year is one more quarter left with the high furlough period. Two more quarters left. And the next quarter is going to be a high furlough period. So that will stay at where we have stated during the AGM.

    — Phani Tangirala

  • Revenue Growth Revenue · FY27 · High confidence healthy double-digit growth
    Next financial year, absolutely, yes. I mean we'll stick to what we said by targeting healthy double-digit growth.

    — Phani Tangirala

Headcount

  • AI Literacy Headcount · by end of next year (FY27) · High confidence 100% of employees AI literate
    As I have been emphasizing, AI certainly becomes the focal point of our delivery. And as a part of this drive, we have started a major training learning and development initiative with an ambitious project of getting 100% of our employees to be Al literate by end of next year.

    — Phani Tangirala

What to watch in Q3 FY26

M&A Decision on 2 Assets

by Jan (Q1 FY27)
Current Due diligence commenced on 2 assets
Target One acquisition decision made

Why it matters

Indicates future inorganic growth and capability expansion, impacting the company's strategic direction.

And this process will take at least 1.5 months and by Jan, we will know about this. ... Q1 of next year, we'll definitely make one decision.

Risks & concerns

  • Rising Attrition

    medium

    Attrition has gone up due to the market showing signs of recovery, requiring necessary measures to keep the team motivated.

    As I speak about the outlook on this growth and profitability, there is certainly an attrition factor, which is now gone really up, with the market slightly showing the signs of recovery, the attrition also has gone up. And hence, we have put necessary measures in place to ensure that the larger team stays motivated.

    Management acknowledged

  • Challenges in Auto Vertical

    medium

    The auto segment faces continued challenges from competition, tariffs, and shifts in engine technology, with no short-term or mid-term recovery expected.

    But definitely, the challenges in auto will continue. I think you are aware on the especially challenges of the European carmakers not only the competition from China, the tariffs from the U.S., a change in strategy away from pure electrification more again into hybrid and combustion engines. And therefore, we do not see really a recovery there short and midterm on the auto side, but we clearly see it on the aero and defense segment.

    Management acknowledged

  • High Furlough Periods

    low

    The upcoming Q3 FY26 will have December furlough and holiday periods, which might impact performance.

    We are really excited now with this boost to get into the last quarter, which might remain because the last quarter will have December furlough periods and holiday periods.

    Management acknowledged

Q&A highlights

7 direct
Sequential Constant Currency Growth Direct
Yes. So I talked about it in my remarks. At constant currency for this quarter compared to the previous quarter, we have grown by 6%.

Clarifies the underlying growth rate excluding currency fluctuations, a key metric for IT services.

Asked by Jalaj from Svan Investments

BFSI Vertical Growth Drivers Direct
The 2 contributing factors, I would say, for financial services is the technology adoption in financial services compared to our aero, defense and other industry verticals is extremely high. That has been the trend for BFSI for very long time... And with the advent of AI now, and as I spoke in the initial note also that the AI and AI infield services are kicking well with financial services...

Provides specific reasons for strong performance in a key vertical, highlighting the role of AI and legacy modernization.

Asked by Sankaranarayanan from ithought PMS

Aerospace and Auto Vertical Outlook Direct
Auto, regardless of our direct business are coming from group that is going down. And as a strategy for 2026, we have decided that our strategic investments will not be on auto anymore but aero definitely is showing an uptick. Ralph, do you want to add anything? ... No short and midterm on the auto side, but we clearly see it on the aero and defense segment.

Reveals a strategic shift away from the auto sector and clarifies the differing outlooks for aerospace and auto, indicating where future investments will be focused.

Asked by Sankaranarayanan from ithought PMS

Onshore vs. Offshore Delivery Mix Direct
I think we see that due to the overall cost pressure, there are only the minimum activities that must be considered and will be delivered onsite. All the rest will be in a global or even in a delivery model, including then the delivery centers we have. And you know we have them on the engineering side, Morocco, Romania and India, and it's straight way forward to India for all the other business segments. And this trend will definitely continue and accelerate due to, a, the cost pressure that we see; and b, even the capacity that is needed to make the necessary investments in all the industries.

Highlights a structural shift towards offshore delivery, particularly to India, driven by cost pressures and capacity needs, which could impact margin profiles.

Asked by Sankaranarayanan from ithought PMS

M&A Strategy and Timeline Direct
On M&A front, as I updated last time, we have been evaluating several assets and finally narrowed down to 2 assets, where we have just be commencing the due diligence. And this process will take at least 1.5 months and by Jan, we will know about this. ... Q1 of next year, we'll definitely make one decision.

Provides concrete steps and a timeline for potential M&A activity, indicating future inorganic growth or capability enhancement.

Asked by Sankaranarayanan from ithought PMS

AI's Impact on QA/Testing Business Direct
So you are right, when it comes to the QA, the need for QA has been more than ever now because you are generating today things from Gen AI capabilities purely from a black box and then the need for that, which is not coded by an individual has to be thoroughly verified against quality than before. So that has been understood because there is significant cost gains that have come from saving development time. But at the same time, we don't know what the output is. So the quality assurance efforts have to be improved.

Explains how AI is transforming, rather than diminishing, the QA business, making it more critical and evolving the nature of services provided.

Asked by Jalaj from Svan Investments

Revenue Growth vs. Headcount Growth Non-linearity Direct
Absolutely. And I will be very happy if this continues because the value that we get out of each resource has to only grow up. Otherwise, the threat of remaining augmentation company is not in the vision of this company. So it has to be a more value-based and a premium has to be given to that value, which the customers, the moment we accept, we see even the revenue growing and the headcount declining could be a general trend. And that is something which I personally see it as highly welcoming.

Highlights management's strategic shift towards value-based services, aiming for higher revenue per employee and potentially higher margins, rather than headcount-driven growth.

Asked by Jalaj from Svan Investments

Margin Improvement Aspirations Partial
Absolutely. The entire crux of the whole thing is we don't want to have a larger headcount with very little margins on it and it is not a sustainable one. It has to be a high margin, high-value, high stickiness services that should lead this organization with higher revenue with lower number of people. That would continue. ... At this point of time, very difficult to put a number, but the efforts are definitely only to improve from where we are.

Reinforces the strategic focus on high-margin services and confirms the aspiration for continued margin improvement, though without specific targets.

Asked by Jalaj from Svan Investments

2 min read 6 chapters

Detailed narrative

Robust Q2 FY26 Performance Driven by Digital and Operational Efficiency

Expleo Solutions delivered a strong Q2 FY26, with operating revenue growing 8.9% sequentially to INR 2,827 million and 9% year-on-year. Constant currency operating revenue also saw a healthy 6% QoQ growth. This performance was significantly bolstered by an expansion in EBITDA margins, which rose from 12.8% in Q1 FY26 to 17.1% in Q2 FY26, primarily due to operational efficiencies, optimized operating costs, and a 2-3% boost from favorable forex movements.

Strategic Focus on AI, Key Geographies, and Cost Optimization

The company's strategy revolves around four key pillars: growing existing accounts, focusing on high-growth geographies like the U.S. and Middle East, leveraging digital and AI services as differentiators, and maintaining lean operations. Investments in AI are beginning to yield results, with new revenue streams and renewed customer confidence. The Middle East and U.S. regions have shown strong growth, contributing to the overall positive performance.

Vertical Performance: BFSI and Defense Strong, Auto Facing Headwinds

The BFSI, insurance, and defense verticals continue to be promising, with a healthy pipeline for 2026. BFSI growth is particularly driven by AI-infused legacy modernization and data analytics. In contrast, the auto vertical experienced degrowth, and the company has strategically decided to cease new investments in this segment for 2026 due to ongoing challenges like competition, tariffs, and shifts in engine technology. Aerospace, however, shows an uptick, especially from the group business.

Evolving Role of QA with AI Integration

Management clarified that while the nature of Quality Assurance (QA) is changing, its importance is increasing due to AI. The shift from manual to AI-infused testing, including test case generation and automation, is making QA more critical for verifying AI-generated outputs. Expleo, as a leader in independent software testing, aims to differentiate itself through continuous innovation in AI-infused QA services.

M&A Strategy and Future Growth Outlook

Expleo is actively pursuing inorganic growth, with due diligence underway for two potential acquisition targets. A decision on at least one is expected by January (Q1 FY27). The M&A strategy focuses on acquiring assets that supplement existing skills in specific industries, geographies, or service lines. For the current FY26, the company maintains its guidance of high single-digit revenue growth, while targeting healthy double-digit growth for the next financial year (FY27).

Focus on Value-Based Services and AI Literacy

The company is embracing a non-linear growth model, aiming for higher revenue with a lower headcount by focusing on value-based, high-margin, and high-stickiness services. To support this, an ambitious program is in place to make 100% of employees AI literate by the end of next year (FY27), ensuring internal capabilities meet AI demands and enhance service differentiation.

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