EQS-News: Nagarro announces preliminary numbe...

Nagarro SE has reported preliminary financial results for the fiscal year 2025, revealing a revenue of €999.3 million, which represents a modest year-over-year increase of 2.8%. This growth, while positive, is tempered by a decline in adjusted EBITDA to €138.2 million, down from €147.5 million in the previous year, resulting in an adjusted EBITDA margin of 13.8%. The company anticipates revenue for fiscal year 2026 to fall between €1,000 million and €1,060 million, with a gross margin expected around 32% and an adjusted EBITDA margin projected between 14.5% and 15.5%. Notably, an independent investigation concluded without any findings of fraud or misconduct, addressing previous allegations that had cast a shadow over the company’s governance.

The reported revenue growth of 2.8% for 2025, while below the broader market expectations, indicates a resilient performance in a challenging economic environment. The constant currency growth of 6.1% suggests that Nagarro has managed to navigate foreign exchange fluctuations effectively, although the decline in adjusted EBITDA raises concerns about operational efficiency and cost management. The company’s gross profit increased to €321.3 million, reflecting an improved gross margin of 32.2%, up from 30.4% in 2024. However, the decline in adjusted EBITDA and EBITDA, which dropped to €118.7 million from €134.0 million, indicates that the company faced significant headwinds, including a €15.5 million unrealized foreign exchange loss on intra-group loans and a one-time expense of €12.4 million related to new labor regulations in India.

Nagarro’s cash position at the end of 2025 was reported at €124.6 million, a decrease from €192.6 million at the end of 2024. This reduction in cash reserves, coupled with the share repurchase of 919,421 shares for €67.8 million during the fiscal year, raises questions about the company’s funding runway and potential dilution risk. Given the current cash balance and the anticipated operational expenses, Nagarro appears to have a funding runway of approximately 8-10 months, depending on the pace of cash burn and operational expenditures. The company will need to manage its cash flow carefully to ensure it can meet its operational and strategic objectives without resorting to additional financing, which could dilute existing shareholder value.

In terms of valuation, Nagarro’s adjusted EBITDA margin of 13.8% is below the industry average for comparable firms, indicating potential overvaluation relative to its peers. For instance, companies such as Atos SE (Euronext:ATO) and Capgemini SE (Euronext:CAP) typically operate with higher margins, reflecting more efficient operational structures. Nagarro’s projected revenue for 2026, if achieved at the midpoint of its guidance, would represent a growth of approximately 5% over 2025. However, the anticipated gross margin of 32% and adjusted EBITDA margin of 14.5% to 15.5% suggest that the company may struggle to compete effectively on profitability metrics. This could lead to a reevaluation of its market position unless it can demonstrate improved operational efficiencies and cost management.

The conclusion of the independent investigation is a significant milestone for Nagarro, as it alleviates some of the governance concerns that have plagued the company. The investigation, conducted by White & Case with support from Alvarez & Marsal, found no evidence of fraud or misconduct, which should help restore investor confidence. However, the findings did highlight areas for improvement in governance and documentation, which the company is actively addressing. The management's commitment to enhancing governance structures and processes is a positive step towards aligning with best practices in corporate governance, particularly as Nagarro seeks to position itself as a leader in digital engineering.

Looking ahead, Nagarro's next measurable catalyst will be the publication of its audited annual report for 2025, scheduled for April 29, 2026. This report will provide further clarity on the company’s financial health and operational performance, and will be critical for investors assessing the sustainability of Nagarro’s growth trajectory. The guidance for 2026, while cautiously optimistic, will need to be supported by tangible improvements in operational performance and margin expansion to convince the market of its long-term viability.

In conclusion, while Nagarro's preliminary results for FY 2025 show some positive indicators, the decline in adjusted EBITDA and cash reserves raises concerns about operational efficiency and funding sufficiency. The conclusion of the independent investigation is a significant positive, but the company must now focus on executing its strategic initiatives to improve margins and restore investor confidence. Overall, this announcement can be classified as moderate in terms of materiality, as it reflects both challenges and opportunities for Nagarro in a competitive landscape. The company’s ability to navigate these challenges will be crucial in determining its future valuation and market positioning.

Key insights

• ●Revenue grew 2.8% YoY to €999.3 million.
• ●Independent investigation found no evidence of fraud.
• ●Cash balance decreased to €124.6 million.

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