With a market capitalisation of ₹3,931 crores, Datamatics Global operates in the highly competitive computers software and consulting sector. The December quarter results present a paradox: whilst the company achieved its highest-ever quarterly revenue of ₹510.10 crores—marking a 4.05% sequential increase and 19.89% year-on-year growth—the bottom line deteriorated sharply, raising concerns about profitability sustainability despite robust top-line expansion.
The company's nine-month performance for FY26 (April-December 2025) shows consolidated revenue of ₹1,467.89 crores, up 19.70% from ₹1,226.21 crores in the corresponding period last year. However, the profit trajectory reveals underlying stress, with nine-month net profit at ₹150.00 crores compared to ₹160.32 crores in the year-ago period, reflecting a 6.44% decline despite the strong revenue growth.
Financial Performance: Revenue Strength Masks Profitability Challenges
Datamatics Global's Q3 FY26 revenue of ₹510.10 crores represents the company's strongest quarterly performance to date, continuing an upward trajectory from ₹490.23 crores in Q2 FY26 and ₹467.56 crores in Q1 FY26. The 19.89% year-on-year growth significantly outpaces the company's five-year sales compound annual growth rate of 9.78%, suggesting accelerated business momentum.
| Metric (₹ Cr) | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change | YoY Change |
|---|---|---|---|---|---|---|---|
| Net Sales | 510.10 | 490.23 | 467.56 | 497.15 | 425.47 | +4.05% | +19.89% |
| Operating Profit (Excl OI) | 96.24 | 88.83 | 75.93 | 74.54 | 54.56 | +8.34% | +76.43% |
| Operating Margin % | 18.87% | 18.12% | 16.24% | 14.99% | 12.82% | +75 bps | +605 bps |
| Net Profit | 36.38 | 63.24 | 50.38 | 44.86 | 74.31 | -42.47% | -51.04% |
| PAT Margin % | 7.12% | 12.93% | 10.77% | 9.03% | 17.54% | -581 bps | -1042 bps |
Operating margins have shown consistent improvement throughout FY26, with Q3's 18.87% marking the highest level in recent quarters, up from 18.12% in Q2 and 16.24% in Q1. This 605 basis points year-on-year expansion from 12.82% in Q3 FY25 demonstrates effective cost management at the operational level. Employee costs, whilst rising in absolute terms to ₹313.89 crores from ₹302.81 crores quarter-on-quarter, have been controlled relative to revenue growth.
However, the profit after tax margin collapsed to 7.12% from 12.93% in the previous quarter and 17.54% in the year-ago period. This dramatic compression stems from a confluence of factors including elevated depreciation charges of ₹22.00 crores (up from ₹19.91 crores in Q2), higher interest costs of ₹4.55 crores, and significantly lower profit before tax of ₹41.91 crores compared to ₹80.53 crores in Q2 FY26.
The quality of earnings raises questions given the sharp divergence between operating performance and net profitability. Other income contributed ₹12.47 crores in Q3 FY26, down from ₹15.68 crores in Q2, partially explaining the profit decline. The tax rate of 13.29% in Q3 appears favourable compared to 21.28% in Q2, yet this benefit was insufficient to offset the underlying profit pressure.
Operational Challenges: The Depreciation and Interest Burden
A deeper examination reveals that Datamatics Global's profitability challenges stem significantly from rising depreciation and interest expenses. Depreciation surged to ₹22.00 crores in Q3 FY26 from ₹19.91 crores in Q2, representing a 10.50% sequential increase. On a nine-month basis, depreciation stands at ₹61.41 crores compared to ₹28.04 crores in the corresponding period last year—a staggering 119.01% increase.
Critical Cost Pressure Points
Depreciation Spike: Nine-month depreciation at ₹61.41 crores (up 119.01% YoY) reflects significant capital expenditure undertaken in FY25. The company's fixed assets ballooned to ₹807.67 crores in March 2025 from ₹205.51 crores in March 2024, indicating major capacity expansion or acquisitions.
Interest Burden: Nine-month interest expense of ₹13.51 crores represents a 41.47% increase from the year-ago period, driven by long-term debt of ₹136.61 crores introduced in FY25 after operating debt-free for several years.
The balance sheet transformation tells the story: Datamatics Global transitioned from a virtually debt-free company with zero long-term debt in March 2024 to carrying ₹136.61 crores in long-term debt by March 2025. This strategic shift, whilst potentially funding growth initiatives, has introduced interest costs that pressure bottom-line performance. The company's net debt-to-equity ratio, historically negative (indicating net cash position), now reflects this leverage.
Despite these challenges, the company maintains strong return metrics. Return on equity stands at 16.00% on average, whilst return on capital employed averages 26.04%—both indicators of efficient capital deployment. However, the latest ROE of 13.99% and ROCE of 18.97% show sequential deterioration, warranting close monitoring.
Sector Context: Outperforming Amidst Industry Headwinds
The broader computers software and consulting sector has faced significant headwinds, with the industry delivering a negative 10.98% return over the past year. Against this backdrop, Datamatics Global's 11.70% annual return represents a remarkable 22.68 percentage point outperformance versus its sector peers, demonstrating relative strength despite company-specific challenges.
The IT services sector globally has grappled with demand uncertainty, client budget constraints, and pricing pressure. Datamatics Global's ability to sustain 19.89% year-on-year revenue growth in Q3 FY26 suggests the company is gaining market share or successfully penetrating new service areas. The operating margin expansion to 18.87% also indicates pricing power and operational efficiency improvements that many sector peers have struggled to achieve.
Competitive Positioning Insight
Datamatics Global's revenue growth trajectory significantly exceeds its five-year CAGR of 9.78%, suggesting accelerated momentum. The company's focus on digital transformation services, robotic process automation, and data analytics appears to be resonating with clients seeking efficiency gains amidst economic uncertainty.
However, the profit margin compression poses risks. Whilst operating margins have improved, the inability to translate this into bottom-line growth due to elevated depreciation and interest costs could constrain the company's competitive positioning if peers demonstrate better end-to-end profitability management.
Peer Comparison: Valuation Discount Reflects Profit Concerns
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Datamatics Global | 20.06 | 2.81 | 16.00 | 0.72 | -0.19 |
| Cigniti Tech. | 14.95 | 4.05 | 24.05 | — | -0.19 |
| eMudhra | 45.40 | 5.31 | 13.29 | 0.24 | -0.11 |
| R Systems Intl. | 23.49 | 6.40 | 25.96 | 1.60 | -0.17 |
| ASM Technologies | 78.23 | 14.71 | 11.04 | 0.19 | -0.22 |
| Seshaasai Tech. | 17.92 | 3.11 | 0.00 | — | 0.00 |
Datamatics Global trades at a price-to-earnings ratio of 20.06x, below the peer group average of approximately 36x, reflecting investor caution regarding recent profit volatility. The company's price-to-book value of 2.81x also sits at the lower end of the peer spectrum (average ~6.7x), suggesting the market assigns a valuation discount despite the company's reasonable 16.00% return on equity.
The valuation discount appears justified when examining profitability trends. Whilst Datamatics Global's ROE of 16.00% exceeds several peers, the recent profit decline and margin compression differentiate it from competitors demonstrating more stable earnings growth. Cigniti Technologies, for instance, commands a lower P/E of 14.95x but delivers superior ROE of 24.05%, whilst R Systems International combines a 23.49x P/E with 25.96% ROE and higher dividend yield of 1.60%.
Datamatics Global's dividend yield of 0.72% (based on a ₹5 per share dividend) lags most dividend-paying peers, with a conservative payout ratio of 14.41% leaving substantial room for increased distributions should profitability stabilise. The company's debt position, whilst recently introduced, remains manageable with a negative net debt-to-equity ratio of -0.19, indicating cash holdings still exceed debt obligations.
Valuation Analysis: Fair Value Amidst Uncertainty
At ₹690.35, Datamatics Global trades 38.36% below its 52-week high of ₹1,119.95, yet 32.04% above its 52-week low of ₹522.85. The stock's valuation grade stands at "Fair," downgraded from "Expensive" in November 2025 following the share price correction that has seen the stock decline 24.55% over the past six months.
The company's enterprise value-to-EBITDA multiple of 12.97x appears reasonable for a growing IT services firm, particularly given the 19.89% revenue growth demonstrated in Q3. However, the PEG ratio of 1.75x suggests the stock isn't dramatically undervalued relative to growth prospects, especially considering the recent profit volatility.
Historical valuation context reveals the stock traded at "Very Expensive" levels in August 2025 when prices approached ₹1,120. The subsequent correction has brought valuations back to more sustainable levels, though the profit decline complicates fair value assessment. Using the current book value of ₹230.9 per share and applying the company's average ROE of 16.00%, a fair value estimate of approximately ₹750-800 per share emerges, suggesting modest 9-16% upside from current levels.
Shareholding Pattern: Stable Promoter Base, Declining Institutional Interest
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 66.33% | 66.33% | 66.33% | 66.33% | 0.00% |
| FII | 0.54% | 0.79% | 1.03% | 1.14% | -0.25% |
| Mutual Funds | 0.13% | 0.22% | 0.11% | 0.09% | -0.09% |
| Other DII | 0.00% | 0.03% | 0.01% | 0.11% | -0.03% |
| Non-Institutional | 33.01% | 32.64% | 32.53% | 32.33% | +0.37% |
Promoter holding remains rock-solid at 66.33%, unchanged over the past year, with no pledging of shares—a strong positive signal of promoter confidence. The Kanodia family dominates ownership, with Sameer Lalit Kanodia (21.56%), Lalit Surajmal Kanodia (20.87%), and the Vikrant Trust (18.11%) forming the core promoter group.
However, institutional investor interest has waned conspicuously. Foreign institutional investor holdings declined from 1.14% in March 2025 to just 0.54% in December 2025, a 53% reduction in absolute terms. Mutual fund holdings similarly contracted from 0.22% in September to 0.13% in December, whilst other domestic institutional investors exited entirely, reducing their stake from 0.03% to 0.00%.
This institutional exodus coincides with the profit decline and stock price correction, suggesting sophisticated investors have grown cautious about near-term prospects. The total institutional holding of just 0.67% is remarkably low for a company of Datamatics Global's size and market capitalisation, potentially limiting liquidity and analyst coverage. Retail and non-institutional investors have marginally increased their stake to 33.01%, absorbing some of the institutional selling.
Stock Performance: Short-Term Pain, Long-Term Gains
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.73% | +0.53% | +3.20% |
| 1 Month | -16.36% | -3.17% | -13.19% |
| 3 Months | -25.48% | -2.70% | -22.78% |
| 6 Months | -24.55% | +1.80% | -26.35% |
| 1 Year | +11.70% | +8.49% | +3.21% |
| 3 Years | +134.61% | +38.79% | +95.82% |
| 5 Years | +496.67% | +75.67% | +421.00% |
Datamatics Global's stock performance presents a tale of two timeframes. Recent months have been brutal, with the stock declining 25.48% over three months and 24.55% over six months, dramatically underperforming the Sensex. The one-month decline of 16.36% versus the Sensex's 3.17% fall reflects specific concerns about the company's profit trajectory following quarterly results.
However, zooming out reveals extraordinary long-term wealth creation. The stock has delivered 134.61% returns over three years (versus Sensex's 38.79%), 496.67% over five years (versus Sensex's 75.67%), and a staggering 1,127.29% over ten years (versus Sensex's 236.52%). This long-term outperformance of 890.77 percentage points over a decade demonstrates the company's fundamental business strength and growth trajectory.
The stock's beta of 1.84 classifies it as high beta, meaning it exhibits significantly greater volatility than the broader market. With annualised volatility of 47.64% versus the Sensex's 11.24%, Datamatics Global represents a high-risk, potentially high-return proposition suitable primarily for risk-tolerant investors with longer time horizons.
Technical indicators present mixed signals. The stock recently shifted to "Mildly Bullish" on January 27, 2026, at ₹651.80, after a period of mildly bearish sentiment. However, the stock trades below all major moving averages—5-day (₹664.03), 20-day (₹739.01), 50-day (₹802.83), 100-day (₹851.81), and 200-day (₹785.87)—indicating persistent selling pressure. Immediate resistance appears at the ₹739 level (20-day moving average), whilst support rests at the 52-week low of ₹522.85.
Investment Thesis: Quality Concerns Amidst Growth
Datamatics Global's investment thesis rests on several pillars, each with supporting and contradictory evidence:
The company's quality assessment stands at "Average," reflecting solid fundamentals including a five-year EBIT growth rate of 29.16%, strong average ROCE of 26.04%, and minimal debt burden (average debt-to-EBITDA of just 0.27). The company maintains net cash status with a negative net debt-to-equity ratio, and promoters have pledged zero shares, indicating financial prudence.
However, the quality grade has remained at "Average" since October 2025, previously rated "Good" prior to February 2017. The recent profit volatility, declining ROE from historical levels, and modest institutional holdings of just 0.67% contribute to this middling assessment. The company's five-year sales growth of 9.78%, whilst respectable, doesn't place it among sector leaders.
"Revenue momentum remains robust, but the inability to translate operational efficiency into bottom-line growth due to elevated depreciation and interest costs poses a critical challenge for sustainable value creation."
Key Strengths & Risk Factors
KEY STRENGTHS
- Revenue Momentum: Q3 FY26 revenue of ₹510.10 crores represents highest-ever quarterly performance, with 19.89% YoY growth significantly exceeding five-year CAGR of 9.78%
- Operating Margin Expansion: Operating margin improved to 18.87% in Q3 from 12.82% year-ago, demonstrating pricing power and cost control at operational level
- Strong ROCE: Average return on capital employed of 26.04% indicates efficient capital deployment and value-creating business model
- Zero Promoter Pledging: Promoters hold 66.33% with no pledging, signalling strong confidence and financial stability
- Minimal Debt Burden: Despite recent leverage introduction, debt-to-EBITDA remains low at 0.27, with net cash position maintained
- Sector Outperformance: One-year return of 11.70% versus sector's -10.98% demonstrates relative strength and market share gains
- Long-Term Wealth Creation: Five-year returns of 496.67% and ten-year returns of 1,127.29% showcase exceptional long-term value creation
KEY CONCERNS
- Profit Collapse: Q3 net profit plunged 42.47% QoQ and 51.04% YoY despite revenue growth, raising sustainability concerns
- Margin Compression: PAT margin crashed to 7.12% from 17.54% year-ago, with 1,042 basis points deterioration
- Elevated Depreciation: Nine-month depreciation surged 119.01% YoY to ₹61.41 crores, heavily pressuring profitability
- Rising Interest Costs: Nine-month interest expense up 41.47% following debt introduction, adding ₹4.55 crores quarterly burden
- Institutional Exodus: FII holdings declined 53% from 1.14% to 0.54%, mutual funds reduced stakes, signalling caution
- High Volatility: Beta of 1.84 and annualised volatility of 47.64% make stock unsuitable for risk-averse investors
- Recent Underperformance: Stock down 24.55% over six months, trading below all major moving averages with persistent selling pressure
Outlook: What to Monitor
POSITIVE CATALYSTS
- Profit Recovery: Any signs of PAT margin stabilisation above 10% in Q4 FY26 would signal cost pressures easing
- Depreciation Normalisation: As new assets get fully depreciated, quarterly depreciation burden should moderate from current elevated levels
- Revenue Acceleration: Sustained 15%+ revenue growth with improving deal pipeline would validate growth investments
- Institutional Re-entry: Return of FII/MF interest would improve liquidity and signal confidence restoration
- Margin Guidance: Management commentary on achieving 12-15% PAT margins in FY27 would provide visibility
RED FLAGS TO WATCH
- Further Profit Decline: Q4 FY26 net profit below ₹35 crores would establish concerning downward trend
- Revenue Slowdown: QoQ revenue growth below 2% or YoY growth below 15% would indicate momentum loss
- Debt Increase: Any additional leverage beyond current ₹136.61 crores without clear ROI visibility
- Continued Institutional Selling: FII holdings declining below 0.50% or complete mutual fund exit
- Technical Breakdown: Stock breaking below ₹522.85 (52-week low) would trigger further selling pressure
The forward outlook hinges critically on management's ability to translate operational efficiency into bottom-line profitability. The company has demonstrated strong revenue momentum and operational margin expansion, but the inability to flow this through to net profit due to elevated depreciation and interest costs represents the central investment challenge.
Investors should closely monitor Q4 FY26 results (expected in May 2026) for signs of profit stabilisation. The company's guidance on FY27 margin trajectory, depreciation outlook, and capital expenditure plans will be crucial in assessing whether current challenges are transitory (related to recent capacity expansion) or structural.
The Verdict: Cautious Hold Amidst Transition
Score: 61/100
For Fresh Investors: Not recommended for fresh purchases at current levels. Whilst the stock has corrected significantly from highs, profit volatility and elevated depreciation burden create near-term uncertainty. Wait for at least two consecutive quarters of profit stabilisation and clearer margin trajectory before initiating positions. Risk-tolerant investors with three-year-plus horizons may consider small positions below ₹650 with strict stop-loss at ₹520.
For Existing Holders: Continue to hold but remain vigilant. The company's long-term track record, strong promoter commitment, revenue momentum, and operational efficiency improvements justify patience. However, set a review trigger if Q4 FY26 net profit falls below ₹35 crores or if institutional holdings decline further below 0.50%. Consider partial profit-booking if stock rallies above ₹800 without corresponding profit improvement.
Fair Value Estimate: ₹750-800 (9-16% upside), contingent on profit margin recovery to 10-12% levels. Current valuation appears fair but not compelling given execution risks.
Note- ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The author and publisher assume no responsibility for investment decisions made based on information contained herein.
