Best Smidcap Ideas: A Diamond In A Rough Neighborhood

研报英文原文证据摘录

Best Smidcap Ideas: A Diamond In A Rough Neighborhood

ing, and Healthcare, which promote

strong client retention and a moat for tackling more complex business processes. And, based

on recent market dynamics with model/token cost concerns, we think clients are apt to rely

on EXLS more given escalating concerns on costs and AI outcomes as EXLS is able to deliver

process efficiencies through its growing suite of proprietary domain-specific models/SLMs.

■Margin Expansion Retains Runway: Longer-term margin expansion opportunities are

ample through a growing mix of higher-margin Data & AI-led solutions, new pricing model

adoption, 'client zero' initiatives, and a reduced need for headcount additions, on top of more

typical cost control measures (bench optimization, function consolidation, etc.). Currently,

margin expansion is being offset by investments into D&AI IP, R&D, and talent, reflecting

management's near-term focus on deepening its moat vs maximizing margin levels. This is

critical to sustain strong revenue expansion. Continued D&AI momentum suggests that GM

upside exists for the foreseeable future. Our FY26 GM tests are +20 bps above Street 38.6%,

while our FY26 AOM ests are inline at 19.5%.

Catalysts & Milestones To Watch

■Quarterly Earnings: Despite elevated macro uncertainty, we anticipate a likely continuation

of beat-and-raise activity through FY26, which is apt to support positive investor sentiment

relative to Services peers. Relative durability, a strong pipeline, and EXLS' track record of

prudent forecasting yields lower downside risk on FY26 targets.

■GenAI Solution Development & Client Adoption: EXLS continues to invest wisely into its Data

& AI solution IP, evident with continued additions to its agentic/AI offerings, a 4x increase