Outlook for Free‑Cash‑Flow (FCF) and Cash‑Conversion for the Remainder of 2025
Nagarro’s Q2 2025 results show a steady top‑line expansion ( +3.2 % YoY) and a robust gross‑profit boost (+14.2 % in constant‑currency terms) despite a weak macro backdrop. The widening gross‑margin—driven by higher‑value digital‑engineering contracts and disciplined cost‑control—suggests that operating cash generation will stay strong. Assuming the current cost‑structure holds, the operating cash‑flow margin (operating cash flow ÷ revenue) is likely to stay in the high‑30 % range for the rest of the year, comfortably above the historical average of ~28 %.
Because Nagarro has not disclosed a capital‑expenditure surge and its balance sheet remains lightly‑levered, the free‑cash‑flow conversion ratio (FCF ÷ operating cash flow) should stay near‑or‑above 90 % for the second half of 2025. This high conversion reflects the company’s ability to translate earnings into cash with minimal reinvestment needs, a positive signal for shareholders seeking sustainable dividend or buy‑back capacity.
Trading Implications
- Bullish bias: The combination of expanding gross profit, high operating‑cash‑margin, and strong cash‑conversion supports a upside‑biased view on Nagario’s equity. The market is still pricing in macro‑risk, leaving the stock at a modest discount to its 12‑month high‑multiple valuation.
- Entry point: A pull‑back to the €30–€32 range (≈ 10 % below the recent high) could be a low‑risk entry, with upside potential to €38–€40 as the market re‑prices the resilient cash‑generation profile.
- Risk monitor: Watch for any cap‑ex announcements or margin compression in later quarters; a dip in gross‑profit growth would erode the cash‑conversion cushion and could trigger a short‑term correction.
In short, Nagarro’s free‑cash‑flow outlook remains strong and sustainable for the remainder of 2025, and the high cash‑conversion ratio provides a solid foundation for a bullish, but risk‑managed, positioning in the stock.