Genpact's Digital Mix Rise Underscores Valuation Discount Amid Steady Transition

What happened

Genpact is progressing in its shift from legacy business process outsourcing to higher-value digital transformation services, with Advanced Technology Solutions (ATS) now accounting for approximately 24% of revenue. The company targets ATS reaching 27-28% by FY27-28, which is expected to support margin expansion and create a more resilient, annuity-like revenue model. Despite this improving fundamental profile and a discounted cash flow intrinsic value estimate of $56 per share, the stock continues to trade at a significant discount to larger peers like Accenture and Infosys. Strong operating cash flow, exceeding $600 million annually, funds consistent dividends and share buybacks, while a diversified customer base with no single client over 10% mitigates concentration risk. However, critical execution risks remain, including the pace of GenAI pilot conversions to production, pricing pressures in core services, and upcoming debt refinancing needs in 2026.

Implication

The increasing ATS revenue share enhances Genpact's earnings quality and supports long-term margin growth, making it more attractive for value-oriented investors. Current valuation multiples below peers suggest room for upside if the digital transition continues smoothly and targets are met. Steady cash flow from operations funds ongoing shareholder returns, providing a downside buffer in volatile markets. Key risks that could derail the thesis include slower-than-expected conversion of GenAI pilots, competitive pricing pressures, and adverse terms in debt refinancing. Regular tracking of metrics like ATS mix growth, bookings conversion rates, and cash flow trends will be essential to validate the investment case and adjust positions accordingly.

Thesis delta

The new article corroborates the existing BUY thesis by providing updated ATS mix projections and a DCF valuation that highlights the stock's undervaluation relative to peers. No material shift in stance is warranted, but the data reinforces the potential for gradual rerating as digital revenues scale, contingent on successful execution and risk management.