ESDS share price up 5%: Choice says 'Buy' after Q2 results, sees 37% upside
ESDS share price target: Following the recent stock correction, the implied upside has improved materially, making the risk-reward favourable.
- Nov 3, 2026,
- Updated Nov 3, 2026 9:27 AM IST
ESDS Software Solution Ltd was locked at its 5 per cent upper circuit limit on Tuesday after the company reported stable September quarter results. The stock gained even as the monetisation of its Sharon AI facility has been delayed by three weeks, Choice Institutional Equities said on Tuesday, as it upgraded the stock to 'Buy' with a target price of Rs 1,550, implying 37 per cent potential upside.
On Tuesday, the scrip stood at Rs 1,188.20 apiece.
Choice Institutional said customer testing for the Sharon AI facility is expected to commence by mid-November 2026, with revenue recognition now anticipated from December 2026.
Choice said the management highlighted a sizeable opportunity across sovereign cloud and AI infrastructure, with a Rs 3,000 crore domestic AI pipeline and an international opportunity exceeding 50,000 GPUs, although these represent potential opportunities rather than committed revenues.
"Conversion of pipeline, deployment timelines and capacity utilisation remain key monitorables. We accordingly cut our FY27E estimate by 7.5 per cent, factoring in GPU revenue commencement from December 2026, while retaining our FY28E estimates. We continue to value ESDS at 18 times FY28E EV/Ebitda, with DCF as a cross-check, maintaining our target at Rs 1,550," Choice said.
Following the recent stock correction, the implied upside has improved materially, making the risk-reward favourable.
Choice said the management expects the 8,200-GPU cluster to be operational by early-to-mid December, enabling partial revenue recognition in Q3FY27 and a full-quarter contribution in Q4FY27. At full utilisation, the project is likely to generate monthly billing of approximately Rs 288 crore and PAT of Rs 50-60 crore.
"Additionally, ESDS has an Rs 3,000 crore domestic AI infrastructure pipeline, primarily comprising IaaS opportunities. The company plans to invest Rs 1,500 crore in a domestic AI factory, targeted for commissioning in June 2027, providing an additional growth lever beyond the Sharon AI contract," Choice said.
Choice said ESDS's Ebitda margin remained broadly stable at 41.8 per cent against 42 per cent in Q1FY27, reflecting resilience in the underlying business ahead of the Sharon AI ramp-up.
However, any incremental contribution from international AI factories is likely to moderate the consolidated margin, given their lower PAT margin of 16-18 per cent against 26-27 per cent for domestic factories.
"While Sharon AI provides strong revenue visibility, existing pricing commitment limits near-term margin upside despite higher prevailing GPU rental rates. Conversely, domestic AI infrastructure offers better profitability, with revenues of approximately Rs 500 crore expected to scale up 3-4 times over the next 1-2 years. Margin should gradually recover as domestic capacity scales," Choice said.
ESDS Software Solution Ltd was locked at its 5 per cent upper circuit limit on Tuesday after the company reported stable September quarter results. The stock gained even as the monetisation of its Sharon AI facility has been delayed by three weeks, Choice Institutional Equities said on Tuesday, as it upgraded the stock to 'Buy' with a target price of Rs 1,550, implying 37 per cent potential upside.
On Tuesday, the scrip stood at Rs 1,188.20 apiece.
Choice Institutional said customer testing for the Sharon AI facility is expected to commence by mid-November 2026, with revenue recognition now anticipated from December 2026.
Choice said the management highlighted a sizeable opportunity across sovereign cloud and AI infrastructure, with a Rs 3,000 crore domestic AI pipeline and an international opportunity exceeding 50,000 GPUs, although these represent potential opportunities rather than committed revenues.
"Conversion of pipeline, deployment timelines and capacity utilisation remain key monitorables. We accordingly cut our FY27E estimate by 7.5 per cent, factoring in GPU revenue commencement from December 2026, while retaining our FY28E estimates. We continue to value ESDS at 18 times FY28E EV/Ebitda, with DCF as a cross-check, maintaining our target at Rs 1,550," Choice said.
Following the recent stock correction, the implied upside has improved materially, making the risk-reward favourable.
Choice said the management expects the 8,200-GPU cluster to be operational by early-to-mid December, enabling partial revenue recognition in Q3FY27 and a full-quarter contribution in Q4FY27. At full utilisation, the project is likely to generate monthly billing of approximately Rs 288 crore and PAT of Rs 50-60 crore.
"Additionally, ESDS has an Rs 3,000 crore domestic AI infrastructure pipeline, primarily comprising IaaS opportunities. The company plans to invest Rs 1,500 crore in a domestic AI factory, targeted for commissioning in June 2027, providing an additional growth lever beyond the Sharon AI contract," Choice said.
Choice said ESDS's Ebitda margin remained broadly stable at 41.8 per cent against 42 per cent in Q1FY27, reflecting resilience in the underlying business ahead of the Sharon AI ramp-up.
However, any incremental contribution from international AI factories is likely to moderate the consolidated margin, given their lower PAT margin of 16-18 per cent against 26-27 per cent for domestic factories.
"While Sharon AI provides strong revenue visibility, existing pricing commitment limits near-term margin upside despite higher prevailing GPU rental rates. Conversely, domestic AI infrastructure offers better profitability, with revenues of approximately Rs 500 crore expected to scale up 3-4 times over the next 1-2 years. Margin should gradually recover as domestic capacity scales," Choice said.